Preamble

The House met at Half past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — CIVIL AVIATION

Developments, Scotland

Major Anstruther-Gray: asked the Minister of Civil Aviation what developments are proposed by his Department in Scotland during the present year, apart from those at Prestwick.

The Minister of Civil Aviation (Mr. Alan Lennox-Boyd): A new terminal building and control tower are now under construction at Renfrew Airport, and it is hoped to start work on a new terminal building at Edinburgh (Turnhouse) Airport later this year.

Major Anstruther-Gray: Is my right hon. Friend really satisfied with that reply? Does it show that we are being sufficiently urgent in pressing the need for this development?

Mr. Lennox-Boyd: We are doing our best to see that a fair share of the development goes to Scotland, and I would remind my hon. and gallant Friend that, apart from London Airport, more money will be spent on Renfrew this year than on any similar project in any other part of the United Kingdom.

Mr. Woodburn: Can the right hon. Gentleman say, in regard to these developments, how far success has been achieved in providing a runway at Edinburgh Airport capable of receiving the most modern machines?

Mr. Lennox-Boyd: When I make the fuller statement about the airport, which, when answering Questions I have hinted I shall make, I shall deal with that particular point.

Major McCallum: Arising out of the original answer, may I ask my right hon. Friend what developments are likely in Scotland this year in helicopter flying services?

Mr. Lennox-Boyd: This Question was intended, I take it, to obtain from me details, which I am very glad to give, of the expenditure for which I am responsible. In regard to the actual services, I am told by B.E.A. that they hope to improve the frequency, capacity and timing of their services in Scotland during the current year, but, in Scotland as elsewhere, on helicopter development there is still a very great deal of early work to be done.

London Airport (Noise)

Mr. R. Harris: asked the Minister of Civil Aviation if he will give orders to the management of London Airport that the loudspeakers in the public enclosure at London Airport are to be used as little as possible, that music and singing are to cease altogether, that the number of announcements is to be reduced to a minimum and that the volume be toned down to a level at which it will not cause a nuisance to local residents.

The Parliamentary Secretary to the Ministry of Civil Aviation (Mr. John Profumo): Arrangements have already been made for the noise from loudspeakers in the public enclosure at London Airport to be kept at a level which should not cause a nuisance to the local residents. In these circumstances, I would not propose to change the purposes for which the equipment is used.

Mr. Beswick: Is not the Parliamentary Secretary aware that there is a Consultative Committee which is supposed to consider these matters? Can he say whether this matter has been brought before it and whether it has discussed it?

Mr. Profumo: The hon. Gentleman knows the answer to that, because when he held my present office he went into this matter very carefully at that time, but whether he took the advice of the Consultative Committee or not I do not know. Since that time we have had only one representation made, and that was when we were testing equipment this year. I take it that everybody is now satisfied.

Mr. R. Harris: asked the Minister of Civil Aviation whether he can yet make public any reports on the efficiency of the acoustic walls at London Airport; whether he is satisfied with the results of the experiments; and what further steps are being taken to reduce or eliminate the noise of aircraft engines being serviced or run-up at night.

Mr. Profumo: So far, we have been able to experiment only with light aircraft, and the results have been promising, but it is early to form a clear conclusion. We shall be experimenting with larger and noisier aircraft in the near future. In the meantime, all operators at London Airport have been requested, and have willingly agreed, not to run aircraft engines at night without urgent operational need.

Mr. R. Harris: asked the Minister of Civil Aviation if he will take immediate steps to stop pleasure aircraft from operating from London Airport in view of the inconvenience caused to local residents by the additional noise, which is particularly aggravating on Sundays.

Mr. Profumo: All possible steps have been taken to ensure that pleasure flights do not pass unnecessarily over populated areas near London Airport, and these arrangements will continue. Pleasure (lying is one of the most popular attractions among visitors at the Airport, and I could not agree to it being stopped altogether.

Mr. Harris: Will the Minister bear in mind that to have pleasure aircraft flying from London Airport is simply adding insult to injury to a neighbourhood which has suffered very severely from loss of amenity because of the very large aircraft which fly to and from London Airport? Would it not be possible for pleasure flying to be done from aerodromes in the country nowhere near built-up areas?

Mr. Profumo: I very much sympathise with my hon. Friend in the difficulties which his constituents have in regard to noise and disturbance from London Airport, but the point is that there is pleasure flying from other aerodromes as well. Here, we have a public enclosure, and this is one of the most pleasurable things for people who go into that enclosure. In addition, it encourages air-mindedness.

and makes a useful contribution towards the cost of operating the airport. I cannot add anything to the answer I have given.

Mr. Beresford Craddock: Will my hon. Friend consider this matter again, because the noise which is caused day and night to my constituents by London Airport is simply appalling? Why cannot he go there occasionally and listen to it, when I am sure he would agree with the views expressed by my hon. Friend and myself?

Mr. Profumo: It is not because I have not been there a great deal. I am well aware of the difficulties at London Airport, but my right hon. Friend is responsible for the whole field of civil aviation. If there have been any difficulties which cause problems to local residents from the point of view of pleasure flying, I will gladly look into any particular case, but I am not in a position to say that I can stop pleasure flying altogether.

Fish Transport

Mr. Hector Hughes: asked the Minister of Civil Aviation what proposals have been submitted to him for air transport services to carry fresh fish direct from Aberdeen to Birmingham and Billingsgate; and what action he is taking to authorise such services.

Mr. Profumo: No proposals have been submitted by British European Airways or any independent air transport undertaking for the carriage of this traffic. I understand that it is normally impracticable to carry fish on aircraft used for passengers or other types of freight and that the cost of a service catering for fish only would probably prove excessive. It is, nevertheless, open to any independent company to arrange to carry this traffic on a charter basis without the specific authorisation of my right hon. Friend.

Mr. Hughes: Is it not time that the Ministry took the initiative in this matter, because both the fishing industry and the consumers would welcome quicker and better transport of this succulent food? Dyce Airport is waiting to be used, so will the Minister see that it is used?

Mr. Profumo: This, of course, is a matter which should be taken up with the operators concerned. My right hon. Friend has no power to order any company to carry this sort of traffic The


hon. and learned Gentleman himself would probably not travel twice on a plane which had carried fish on a previous occasion.

Mr. McGovern: Is the Minister aware that at times there are some very queer fish to be found on these planes?

Scheduled Services (Applications)

Mr. Shackleton: asked the Minister of Civil Aviation how many applications to operate scheduled services he has received from independent operators; on which routes these applications have been opposed by one or other of the British air corporations; and which of these opposed applications he has granted.

Mr. Profumo: I am informed that the Air Transport Advisory Council have received 178 applications from independent operators and that one or both of the Corporations opposed 28 of these applications without qualification, and eight of these, mostly all-freight services, were approved: in addition, one or both Corporations made qualified objections to a further 10 applications, of which five have been approved. I will include details of these routes in the OFFICIAL REPORT.

Mr. Shackleton: Can the Minister say how far the refusal to allow one of the Corporations to take over one of these eight freight services, which I gather have been granted to independent operators, is going to damage the financial position of one or other of the British Air Corporations?

Mr. Profumo: I think that when the hon. Gentleman reads what I shall circulate in the OFFICIAL REPORT he will see that it is not a question of an independent operator taking over an all-freight service or of an independent operator having been granted or recommended an air service where the Corporation already have a right. As regards the second part of the hon. Gentleman's supplementary, my right hon. Friend has every confidence in the ability of the Air Transport Advisory Council to judge whether any new applications would undermine the existing services of the Corporations.

Sir H. Williams: Is the Minister aware that anybody can take a ship to sea

without anybody's permission under the Merchant Shipping Act? Having regard to the great success of our mercantile marine, would it not be a good idea to have the same freedom in the air?

Following are the details:

ROUTES ON WHICH APPLICATIONS HAVE BEEN OPPOSED WITHOUT QUALIFICATION BY ONE OR BOTH CORPORATIONS

(a) Routes Approved

London—Aden (NSS).
London—Salisbury (CC).
London—Frankfurt (AF).
London—Zurich (AF).
London—Hamburg (AF).
London—Cologne—Munich (AF).
London—Milan—Rome (AF).
London—Marseilles—Rome (AF).

(b) Routes Rejected

London—Malta (CC).
London—Naples (NSS).
London—Paris (AF).
London—Tripoli (NSS).
London—Mombasa (CC).
Birmingham—Nice (NSS).
London—Cyprus (CC).
Birmingham—Amsterdam (NSS).
Coventry—Channel Islands (I).
Reading—Channel Islands (I).
Guernsey—Dinard (NSS).
London—Cannes (NSS).
London—Marseilles—Milan (AF).
London—Pau (NSS).
London—Cyprus—Kuwait (CC).
Southampton—Tangier (NSS).

(c)Routes on which no decision has yet been taken

London—Accra (CC).
London—Kano (CC).
London—various points in North Europe (AF).
London—Khartoum (NSS).

ROUTES ON WHICH ONE OR BOTH CORPORA-TIONS HAVE MADE QUALIFIED OBJECTIONS

(a) Routes Approved

Newcastle—Glasgow (I).
Newcastle—Manchester (I).
Portsmouth—Paris (NSS).
Liverpool—Channel Islands (I).
London—Bulawayo (temporary)

(b) Routes Rejected

London—Jersey (I).
Birmingham—Jersey (I).
Southampton—Channel Islands (vehicle ferry).

(c) Routes on which no decision has yet been taken

Southampton—Lisbon (NSS).
Portsmouth—Channel Islands (I).
NSS = Normal Scheduled Service.
CC = Colonial Coach Service.
AF = All-freight Service.
I = Internal Service.

Airports, London Area

Mr. Shackleton: asked the Minister of Civil Aviation when he hopes to implement his declared policy to reduce the number of airports in the London area to three.

Mr. Lennox-Boyd: Progress in carrying out this policy must necessarily be by stages, and I regret I cannot at present forecast dates.

Mr. Shackleton: Does the Minister, perhaps, regret his original statement?

Mr. Lennox-Boyd: Not at all.

Colonel Gomme-Duncan: Can my right hon. Friend say whether when this reduction takes place it will provide an excellent opportunity for opening the airport long promised at Errol in Perthshire?

Mr. Beswick: Does the Minister remember that in October, 1952, he made the quite categorical statement that he proposed to reduce the airports serving London from seven to three and that the one difference between his Government and their predecessors was that he could make a decision? Are we to now understand that he can give no date when he proposes to close down the other four?

Mr. Lennox-Boyd: If the hon. Gentleman will read my answer, which was carefully prepared, I think he will find the answer there.

Mr. Beswick: Is there any difference between the statement which the right hon. Gentleman has just made and the statement made by his predecessor?

Mr. Lennox-Boyd: It is the difference between action and inaction.

Gatwick Airport (Development)

Mr. Beswick: asked the Minister of Civil Aviation to give details of relevant information with regard to the proposed development of Gatwick Airport, which has been made known to him since he announced his decision last July to develop Gatwick Airport.

Mr. Lennox-Boyd: At this stage I have nothing to add to the answer which I gave the hon. Member on 10th June.

Mr. Beswick: The answer which the Minister gave the hon. Gentleman on 10th June was to the effect that he had since received information about undertakings that had been given by his predecessors. Does not he think it would be unfortunate, to say the least, if he gave the impression that his predecessors had given any undertaking of which he was unaware when he made his statement in July last year?

Mr. Lennox-Boyd: What I said in reply to a supplementary question was that certain inferences were drawn by some people from statements made by our predecessors, and on that I would refer the hon. Gentleman to correspondence recently in "The Times" on that particular point. There are, of course, other issues, like the Brighton Road diversion and certain railway questions, which have since been put to me in a rather different light, and which have demanded some reconsideration of our detailed plans.

Mr. Beswick: While I can understand the complications now troubling the Minister and can appreciate his desire to give full heed to the representations made to him, will he now make it quite clear that when last week he said that undertakings were given of which he was then unaware he was not stating the position correctly?

Mr. Lennox-Boyd: I did not say that I was unaware of the undertakings. I said that certain undertakings had been given which had now complicated our position, and I added that inferences had been drawn from statements made by my predecessors of which, naturally, I must now take account.

Fog Dispersal (London Airport)

Mr. Beswick: asked the Minister of Civil Aviation when the civil airline operators were asked to give their opinions about the operation of F.I.D.O, at London Airport; when the replies were received; and what is the consensus of opinion of the operators with regard to this matter.

Mr. Lennox-Boyd: Proposals on F.I.D.O. at London Airport were put to the airline operators in November, 1950, and April, 1951, when the hon. Member


was Parliamentary Secretary to the Ministry of Civil Aviation. Final replies had been received by September, 1951. When the present Government took office, however, it found the implications of these proposals too expensive. A scheme for a considerably cheaper installation has since been worked out. British European Airways (which is the largest user of London's Airports) have examined this new scheme in detail and gave their views last March. The general proposal was also discussed with British Overseas Airways Corporation last July.
In general, the operators see considerable possibilities in F.I.D.O. as an aid to regularity, but I should emphasise that it is not a necessity for safety purposes, since aircraft can always be diverted to another aerodrome.

Mr. Beswick: When the right hon. Gentleman talks about the new developments, is he referring to the jets burning heavy oil, and, if so, is he aware that that development was already known when the operators were first approached? Having got this other information, can he say when he is going to make a decision on the matter?

Mr. Lennox-Boyd: A new development which I had particularly in mind was that the former plans covered the full approach length. The present scheme only covers the runway, with the result that the total capital cost falls from £227,000 to £130,000, and the average landing charge from £300 to £120, which makes it all much more worth while.

Commonwealth Air Transport Council

Mr. Beswick: asked the Minister of Civil Aviation for a statement about the recent conference of the Commonwealth Air Transport Council.

Mr. Profumo: The fourth meeting of the Commonwealth Air Transport Council opened in London on 10th June and lasted for three days. Australia, Canada, India, New Zealand, Southern Rhodesia, the Union of South Africa, the United Kingdom and the Colonial Empire were represented. A useful exchange of views on national policies for air transport took place, in course of which the opportunity was taken to explain to Commonwealth delegates how the civil aviation policy of

the present United Kingdom Government had been designed to give greater scope to independent operators while safeguarding the position of the airways Corporations on their established routes. Among other subjects discussed were the problem of noise at airports, future aircraft requirements and the question of regulating the lengths of runways to match the future development of civil aircraft.

Mr. Beswick: May I congratulate the Government on the excellent idea of having a conference on this matter at this time? Can I ask the hon. Gentleman, also, whether any decision was come to as to the agenda at any future meetings?

Mr. Profumo: No action has directly flowed from the Commonwealth Air Transport meeting because, as the hon. Gentleman knows, this is consultative in its character. I am very grateful for the tribute which the hon. Gentleman pays. I am sure we are all agreed that this is a very useful body indeed, which will be meeting again in the not too distant future.

Air Commodore Harvey: Was any agreement reached about future types of aircraft which are now to be designed?

Mr. Profumo: Yes, that was one of the subjects which were discussed.

Rearward-facing Seats

The following Question stood upon the Order Paper:

Mr. JOHN ARBUTHNOT: TO ask the Minister of Civil Aviation, what decision has been taken with regard to the compulsory installation of rearward-facing seats in British passenger air liners.

Mr. Shackleton: May I point out to the Minister, Mr. Speaker, that there appears to be a mistake on the Paper. You were kind enough to call my attention to the fact that this was my Question.

Mr. Speaker: The Question originally stood in the name of the hon. Member for Dover (Mr. Arbuthnot). I was just informed that the Question was cancelled, and then I was told that there was an error and that the Question belonged to the hon. Gentleman for Preston, South (Mr. Shackleton), who has


asked it. In the circumstances, if the Minister has not the answer, it would be unfair to expect him to give it.

Mr. Profumo: I had the answer down for the hon. Member for Dover. It is:
I have nothing to add to the reply I gave to a similar question by the hon. Member for Uxbridge (Mr. Beswick) on 4th February.

B.E.A. Staff (Negotiating Machinery)

Mr. Champion: asked the Minister of Civil Aviation to what extent negotiating machinery exists for dealing with disputes between the employees and the employers in the British European Airways service.

Mr. Lennox-Boyd: The National Joint Council for Civil Air Transport has set up comprehensive machinery for the settlement of terms and conditions of employment of persons employed by the Corporation.

Mr. Champion: Does the right hon. Gentleman by-pass, in individual cases, the machinery of negotiation set up to deal with them, as well as with wages and conditions? I ask this because of the reply which he gave to my hon. and gallant Friend the Member for Belfast, North (Lieut.-Colonel Hyde) on Wednesday last.

Mr. Lennox-Boyd: No, Sir, but, like any other responsible Minister, I am always glad to use any opportunity of bringing the parties to any discussion together again. I certainly do not deliberately by-pass the appropriate machinery.

Mr. N. Macpherson: What means of negotiation are open to unions not represented on the National Joint Council, since in practice they are debarred from making any representations through that means?

Mr. Lennox-Boyd: That is another question.

Porters (Tipping)

Mr. Champion: asked the Minister of Civil Aviation what is now the position of the porter staff employed by him at the various airports in relation to tipping.

Mr. Profumo: Ministry of Civil Aviation porters are forbidden to solicit tips in any way, but it would not be practicable to ban the acceptance of tips freely and spontaneously offered.

Mr. Champion: As this is a practice which is obviously growing, will the Minister introduce, or at least look at, with a view to introducing, the excellent American red-cap system, which works extremely well and is a great relief to passengers?

Mr. Profumo: My knowledge of the customs in America shows that the habit of tipping is more prevalent there than it is over here. I do not think there is any need to change the regulations that we already have.

Mr. Shackleton: Will the Minister not seriously consider the suggestion made by my hon. Friend? I do not know whether he has ever been on an American railway station. There are disadvantages, but one of the advantages is that one does know how much to tip. It would be useful to have such a system.

Mr. Profumo: An added complication is that Ministry of Civil Aviation porters are civil servants. The arrangement that we have at the present time meets the convenience of the public and it would be wrong to try to change it.

Oral Answers to Questions — NEPAL (EVEREST ASCENT ANNOUNCEMENT)

Mr. F. Maclean: asked the Secretary of State for Foreign Affairs under what circumstances the news of the successful ascent of Mount Everest was withheld from the King of Nepal by the British Embassy in Khatmandu until after he had already learned of it from other sources.

The Joint Under-Secretary of State for Foreign Affairs (Mr. Anthony Nutting): Her Majesty's Ambassador informed the King of Nepal of the ascent of Everest at the first opportunity. The King's Senior Counsellor has confirmed to Her Majesty's Ambassador that the King did not hear of the ascent from any other source before the news was conveyed to him by the Ambassador early on 2nd June.

Oral Answers to Questions — VISA ABOLITION AGREEMENTS

Mr. Tilney: asked the Secretary of State for Foreign Affairs what further progress has been made for the mutual abolition of visas between members of the North Atlantic Treaty Organisation.

Mr. Nutting: I am glad to say that since my reply to the hon. Gentleman on 9th March last agreement has been reached between Her Majesty's Government and the Greek Government for the mutual abolition of visas. This Agreement came into force on 16th June.

Mr. Tilney: Will my hon. Friend carry on his successful reciprocal arrangement with other members of the North Atlantic Treaty Organisation?

Mr. Nutting: As I informed my hon. Friend on 12th November and also on 9th March, the position is that we have mutual abolition agreements with every member of N.A.T.O. except the United States and Portugal. The United States is a special case because, as my hon. Friend knows, the immigration laws will not permit such agreement. So far as Portugal is concerned, we have taken the matter up but not yet with any success.

Oral Answers to Questions — BURMA (CHINESE NATIONALIST FORCES)

Mr. A. Henderson: asked the Secretary of State for Foreign Affairs what action is to be taken, following the Four-Power Conference in Rangoon, with reference to the presence of Chinese Nationalist troops in Burma.

Mr. Harold Davies: asked the Prime Minister what steps he proposes to take at the Bermuda Conference to further the withdrawal of Chinese Nationalist troops from Burma.

Mr. Nutting: In answering this Question I have been asked also to reply to Question No. 47 which is put down to the Prime Minister. Discussions between the representatives of the four parties to the negotiating committee now meeting in Bangkok are going on satisfactorily. I hope that they will result in early agreement on a scheme for evacuation. The Question asked by the hon. Member for Leek (Mr. Harold Davies) does not therefore arise.

Mr. Davies: May I ask the hon. Gentleman whether his right hon. Friend has sources of information available which give the movements of the Chinese Nationalist troops? Further, is he aware that there seems to be intense activity at this moment to reach a Burmese port?

Mr. Nutting: I have no information on the latter part of the hon. Gentleman's supplementary question. As to the first part of it, that is one of the difficulties about this whole situation. These troops are in a very inaccessible part of Burma, jungle territory, but I have every hope that as a result of the discussions now proceeding in Bangkok we shall be able to locate them and to evacuate them.

Mr. A. Henderson: Can we take it that the representative of the Chinese Nationalist Government in Formosa now admits that they are in a position to act on behalf of these troops in this part of Burma?

Mr. Nutting: I would hesitate to commit the Chinese Nationalist representative on this committee to any such statement, but I am glad that discussions are proceeding very satisfactorily, after one or two initial disappointments.

Oral Answers to Questions — BRITISH SUBJECTS (RUSSIAN-BORN WIVES)

Mr. F. Maclean: asked the Secretary of State for Foreign Affairs whether he will now make fresh representations to the Soviet Government in the hope that they may be induced to allow the wives of British subjects to join their husbands in this country.

Mr. Dodds: asked the Secretary of State for Foreign Affairs on what date the most recent approach was made to the Soviet Government for exit visas for Russian wives of British subjects; and what progress has been made.

Mr. Nutting: Her Majesty's Ambassador in Moscow made representations to Mr. Molotov on this subject on 11th April last, when he took up the case of Mrs. Klara Hall, an employee of the Embassy in Moscow and the Russian-born wife of Mr. Alfred Hall. Her Majesty's Ambassador has since discussed the case again but has received no satisfaction so far.

Mr. Dodds: Will the hon. Gentleman see that the Russians are made aware that no single incident has done more harm to good will between the people of this country and the Russians than preventing 15 women from joining their husbands, and will he inform them that it will be a big step forward in the right direction if permission is given for them to live together in the proper way?

Mr. Nutting: I can tell the hon. Gentleman that the Soviet Government have been left in no doubt whatever that the views of Her Majesty's Government are in accord with the hon. Gentleman's supplementary question.

Mr. Emrys Hughes: While endorsing what has been said by my hon. Friend about Russian wives being allowed to join their husbands, may I ask the Minister whether he is aware that the Foreign Office refuses to give facilities for British husbands who wish to meet their wives in Moscow to get employment in Moscow, and that one thing is as bad as the other?

Mr. Nutting: I emphatically repudiate the hon. Member's supplementary.

Mr. Emrys Hughes: It is true.

Mr. Nutting: It does not need a great deal of imagination to realise that any Britisher in such a situation as has been described by the hon. Gentleman would be a considerable security risk were he employed in the Soviet Union, and would be liable to a considerable amount of blackmail and pressure, should Soviet authorities or their agents choose to impose such upon him.

Oral Answers to Questions — COMMUNIST COUNTRIES (BRITISH TRADE)

Major Beamish: asked the Secretary of State for Foreign Affairs if he will make a full statement on the subject of British trade with China and other Communist countries; and how far such trade has been within the United Nation's resolutions on the subject.

Mr. T. Reid: asked the Secretary of State for Foreign Affairs what official representations have been made to Her Majesty's Government in respect of the detailed charges made in the United States of America by the Senate Investigating

Committee about British ships carrying Chinese troops and strategic materials to China; and if he will make a statement on the subject.

Mr. Nutting: Since the answer is long, I will, with permission, circulate it in the OFFICIAL REPORT.

Following is the answer:
I welcome this opportunity of making our position clear on the question of British trade with China.
We stand by the United Nations Resolution of 18th May, 1951, which called for an embargo on the supply of strategic goods to China and we are carrying it out with rigour. Export licences for strategic goods to China had in fact been refused by the United Kingdom for nearly a year before the United Nations Resolution. Lists of strategic materials are co-ordinated by a group of nations of which the United States is one. We have recently still further tightened up our controls. Ships on United Kingdom or Colonial registers require licences for any voyage to a Chinese port or between Chinese ports. If any of our ships were to contravene these regulations they would be liable to be hunted down on the high seas by British naval vessels and their managers and masters would become liable to severe penalties.
We have no power to apply these measures to ships flying other flags, but we have taken steps to ensure that no ship of any nation can be bunkered in ports under our control unless we are satisfied that it is not carrying strategic materials to China. So long as the United Nations Resolution of 18th May, 1951, is in force, we shall continue these policies.
With regard to goods which are not the subject to these security controls, it is the policy of Her Majesty's Government to develop trade with the countries of the Soviet bloc and with China. We cannot live without trade and we consider that this trade in non-strategic goods is to the advantage of the free world. I repeat that the goods which we allow to be exported or carried to China by ships flying our flag are all goods which are not on the lists of strategic materials to which I have referred.
It has been alleged that Chinese Communist troops have been carried in British ships since the Central People's Government of China undertook operations in Korea in the autumn of 1950. So far as ships flying the British flag and therefore subject to British authority are concerned, all information available to Her Majesty's Government indicates that these allegations are completely unfounded.
References have been made to two ships called the "Perico" and the "Miramar." These were under the Panamanian flag at the time of the incidents in question in 1951 and 1952. They were neither flying nor entitled to fly the British flag and therefore were not subject to British law.
So far as ships flying foreign flags are concerned, the fact that a British national or company may own shares or have an interest


in a foreign company owning the vessel does not give Her Majesty's Government any legal control over the vessel, or entitle that vessel to fly the British flag. In such cases the control rests with the country whose flag the vessel is entitled to fly. This principle has long been internationally accepted.
On one occasion, in June, 1951, the Master of the "Perico" was forced by the threat of violence if he did not comply, to carry a number of unarmed and guarded Chinese a short distance along the coast of South China, namely from Kwang Chau Wan to Canton. The Master, who was a Norwegian, reported the incident to the authorities on his return to Hong Kong. (This information was also made available to the United States Government). The Panamanian Government is reported to have cancelled the registration of the ship in 1951.
It has been suggested that the "Miramar" arrived at Shanghai during June, 1952, with Communist troops on board. From August, 1951, this vessel was under the effective control of the Chinese Communists and had been prevented by them from returning to Hong Kong. The Panamanian registry of the "Miramar" was cancelled in July, 1952.
At the time of both these incidents, the beneficial ownership of these ships did not rest with British concerns.
The answer to the question asked by the hon. Member for Swindon is that no official representations have been received from the United States Government about these allegations.

Oral Answers to Questions — CORONATION (UNITED STATES BROADCASTS)

Sir R. Grimston: asked the Secretary of State for Foreign Affairs what has been the result of his inquiries from the British Ambassador in Washington as to the alleged insertion of advertisements into the television broadcast of the Coronation Service in the United States of America; and if he will make a statement.

Mr. Nutting: Her Majesty's Ambassador reports that, in general, the American television programmes of the Coronation were marked by exceptional restraint and propriety and that, during the main showings of the television film by the three networks with which the British Broadcasting Corporation had made special arrangements, commercials were reduced to an extent unprecedented in American television. All the information available shows clearly that the treatment of the Coronation in the United States was a most profound manifestation of sympathy and good will towards Britain.

Sir R. Grimston: Does not my hon. Friend think that it follows from that information received from our Ambassador that the attempt being made for propaganda purposes in this country to smear the whole of the American Coronation broadcast is quite unjustified?

Mr. Nutting: Yes, Sir. I agree with my hon. Friend. It was most unfortunate that one or two individual lapses of taste in the presentation of the Coronation proceedings by a vast number—several hundreds—of American broadcasting stations and the television network should have formed the subject of headlines in British newspapers. I might also say that I deplore any attempt by any quarter of this House to drag the United States into this particular controversy about sponsored television in this country.

Mr. Woodburn: Is the Minister aware that what is good taste is a matter of opinion and that it may vary on both sides of the Atlantic? [An HON. MEMBER: "And in this House."] Is the hon. Gentleman further aware that whatever the sponsors of commercial television in this country say, any interjection of commercial advertising into such ceremonies in this country would be viewed with nothing but disgust?

Mr. Nutting: I cannot add much to the reply which I have already given. The right hon. Gentleman says that opinions vary in this matter, but we have had the opinion of Her Majesty's Ambassador in Washington, and also reports from our Consular Officers in the United States, and no such complaint as the right hon. Gentleman has made has been made in any of these reports.

Hon. Members: Withdraw.

Major Legge-Bourke: In view of his original reply, will my hon. Friend now take steps with the Postmaster-General to restrain the B.B.C. from issuing a statement such as they did when they had a completely false conception of what in fact took place?

Mr. H. Morrison: May I ask the Joint Under-Secretary if he will be very careful about exercising the Government's powers to make representations to the B.B.C. and to control and restrict the reasonable freedom of the B.B.C?

Mr. Nutting: It was because I was very conscious of that need that, as perhaps the right hon. Gentleman noticed. I treated the last supplementary question with extreme caution and discretion.

Mr. Edelman: asked the Secretary of State for Foreign Affairs what cooperation took place between the British Information Services and the American broadcasting companies who reproduced the British Broadcasting Corporation Coronation broadcasts.

Mr. Nutting: The head of the British Information Services in the United States was invited by the National Broadcasting Company to be present as a guest in the studio during a news magazine programme, which included the re-broadcasting of the B.B.C.'s sound commentary against a background of still photographs. He was asked in case his advice was required to ensure that the salient parts of the Abbey Service were properly understood by the audience.

Mr. Edelman: Is it not then clear that our representatives in the United States of the two public bodies, the B.B.C. and the B.I.S., have discharged their duties with dignity and decorum, and was not the debasement of the Coronation programme entirely due to advertising inserts by private companies? In this controversy between public and private bodies, is the hon. Gentleman on the side of the chimpanzee?

Mr. Nutting: The hon. Member has raised the question of the chimpanzee. Perhaps I might inform the House of the actual facts of the case with regard to that incident. The programme in which this animal appeared was not a Coronation programme. It was a news magazine programme which appears periodically, either daily or weekly, I cannot say which, in the United States, and of which the chimpanzee happens to be a regular feature. Some people no doubt like this feature. I would pass no judgment whatsoever upon it myself. But it so happens that this news magazine programme had some still photographs of the Coronation included in it. It was not, however, a special broadcast or re-broadcast or re-television of the Coronation ceremony.

Mr. Wyatt: Is not the Joint Undersecretary aware that his complacency about these broadcasts is not shared by the "New York Times," the "New York

Herald-Tribune" and other responsible people and organs of opinion throughout the whole of the United States?

Mr. Nutting: There is no question of complacency involved at all. I am merely giving information, and the facts upon the information that I possess.

Major Beamish: Is my hon. Friend aware that several of the big American broadcasting companies issued an official statement in reply to accusations made by the B.B.C? Can he say why the B.B.C. gave such prominence to their own accusations and no prominence to the official reply?

Mr. Nutting: As I have been reminded by the right hon. Gentleman the Member for Lewisham, South (Mr. H. Morrison), I am not responsible for the statements made by the B.B.C, but I am very glad that the broadcasting companies concerned in the United States have taken steps and have taken the trouble to present the true facts. I only hope that the answers that I have given today have helped further to clarify the facts of the situation.

Oral Answers to Questions — SPAIN (TRADE RELATIONS)

Mr. G. Jeger: asked the Secretary of State for Foreign Affairs whether, in view of the unsatisfactory state of trading relations with Spain, he will re-impose the ban on the export of arms to Spain.

Mr. Nutting: No, Sir.

Mr. Jeger: Is not the Joint Undersecretary aware of the unsatisfactory state of trading relations at the present time and that the Spanish Government are exercising gross discrimination against British goods entering Spain?

Mr. Nutting: As the hon. Member knows, discussions are proceeding in London at present with the Spanish trade delegation. As I understand it, the difficulty in our trade relations with Spain is that they are not buying enough from us. It is precisely because of that that we are trying to sell them more. I should have thought that that was the remedy for the situation and not to sell less.

Mr. Jeger: It is the wrong type of goods that we are trying to sell to them.

Mr. Nabarro: The party opposite sold them.

Oral Answers to Questions — EUROPEAN DEFENCE COMMUNITY (BRITISH ASSOCIATION)

Mr. Wyatt: asked the Secretary of State for Foreign Affairs whether he will issue a White Paper covering the Prime Minister's discussions with the French Prime Minister, M. Mayer, when he was in London, and the subsequent exchanges of correspondence on the subject of British co-operation with the European Defence Community and with France.

Mr. Nutting: No, Sir. Negotiations are proceeding satisfactorily and a statement will be made in the House at the appropriate time.

Mr. Wyatt: Can the Joint Undersecretary give us any indication when that is likely to be? Is he aware that this matter has dragged on for month after month and the House has never been allowed to know anything of what is going on?

Mr. Nutting: The hon. Member has been very patient in this matter. I ask him to be patient a little longer. Negotiations are proceeding very satisfactorily, but they are proceeding in the Interim Commission of E.D.C., which consists of representatives of six nations and ourselves as observers. It takes a long time for the political and military proposals put forward to be hammered out into the most agreeable form for the six nations concerned.

Oral Answers to Questions — MINISTRY OF FOOD

Marmalade and Jam (Standards)

Sir Edward Keeling: asked the Minister of Food whether he is aware that there is a demand, both at home and abroad, for bitter marmalade containing less than the minimum prescribed proportion of sugar; and whether he will ask the Food Standards Committee to consider whether the existing standards for marmalade and jam can be abolished or modified.

The Minister of Food (Major Lloyd George): I have asked the Food Standards Committee to review the existing standard for this type of marmalade.

Sir E. Keeling: I thank my right hon. and gallant Friend.

Dr. Stross: asked the Minister of Food when the term "Full Fruit Standards," as applied to jam, will cease to be used; and whether sulphur dioxide is still used in the preservation of the fruit pulp which is later artificially dyed.

Major Lloyd George: The use of the term "Full Fruit Standards" jam will no longer be required when the Food Standards (Preserve) Order, 1953, comes into force at various dates between September this year and May, 1954. The answer to the second part of the Question is "Yes."

Dr. Stross: Does the Minister mean that when this term is no longer used sulphur dioxide will no longer be used and will be forbidden in the way it was before the war?

Major Lloyd George: No. but it is still an offence to use anything which is injurious.

Dr. Stross: May I press the Minister further? It was always accepted that it was injurious to use sulphur dioxide for fruit preservation. That is why the Ministry forbade it before the war. When is the Minister going to do that again?

Major Lloyd George: I am prepared to look into that question, but the fact is that when jam is boiled the sulphur dioxide disappears.

Orange Juice (Purchase)

Mr. F. Maclean: asked the Minister of Food for a statement regarding the 500,000 gallons of concentrated orange juice recently purchased by his Department and now found to be unsuitable for the use for which it was intended.

Major Lloyd George: Certain shipments of concentrated orange juice from Sicily bought by my Department in 1951 for the Welfare Scheme were found, contrary to specification, to contain an added preservative. While this is common commercial practice, its effect, in the containers used in this case, was to make the juice unsuitable for issue under the Welfare Scheme. The juice is now being reconditioned in accordance with advice from the British Food Manufacturing Industries Research Association. Analysis of the reconditioned juice


by the research associations, the Government Chemist and chemists drawn from the trade discloses no harmful substances and it is therefore being offered for sale.

Mr. Maclean: Can my right hon. and gallant Friend say whether his Department have had any offers?

Major Lloyd George: None, Sir, up-to-date.

Flour (Chalk Content)

Dr. Stross: asked the Minister of Food the total amount of chalk which is added to flour in any given year; and from what source the chalk is obtained.

Major Lloyd George: In the 12 months ended 23rd May, 1953, 11,369 tons of calcium carbonate were added to National flour. The whole of the supplies conformed to the specifications of the British Pharmacopoeia and were obtained from home sources.

Dr. Stross: Is the Minister aware that a great deal of discussion is going on whether there is any need to add chalk to our flour today, and that the original views are suspect? Can he say whether his Department are doing anything to check up on this problem and see whether we could not possibly now do without this substance?

Major Lloyd George: The hon. Gentleman knows as well as I do that there is very seldom unanimity on these particular points. He will also recollect that this was the result of the work of the committee of 1941. The reason that it is still being maintained is because there is a proved deficiency of calcium intake in our diet.

Dr. Stross: Does not the Minister agree that recent experiments in South Africa have shown that the work in 1941 may well be not as accurate as we should like it to be and may not justify the use of 11,000 tons of chalk in our flour each and every year? Will not the Minister's Department look at the question once more?

Major Lloyd George: I am always prepared to look at important matters of this sort, but it is admitted that there is a very serious shortage of calcium intake.

Colonel Gomme-Duncan: Is the Minister aware that it will cause a great deal of alarm in this country if people think that thousands of tons of chalk are put into bread? Is he also aware that if one has full wheat one does not require chalk?

Agricultural Workers (Seasonal Rations)

Brigadier Medlicott: asked the Minister of Food if he is aware of the disappointment expressed by farmers and farm workers over the new arrangements for the issue of seasonal rations; and if he will give fresh consideration to the representations which have been made to him in this matter.

Major Lloyd George: I have already arranged, in consultation with the National Farmers' Union and National Union of Agricultural Workers, for a greater proportion of this extra food to be available during the peak harvest months, and I have promised to review the scheme again in September.

Brigadier Medlicott: Is the Minister aware that that scheme is working particularly badly in places like Norfolk where, during the period from April to July, work on the farms is exceptionally heavy, and yet, under the new scheme, the workers will receive only one issue of these rations whereas under the former scheme they received two?

Major Lloyd George: This change was made in consultation and agreement with both unions concerned.

Wheat

Lieut.-Colonel Lipton: asked the Minister of Food how much wheat has been purchased abroad by his Department and on private account since 1st May, when traders were allowed to import wheat.

Major Lloyd George: It would be contrary to the public interest to give this information.

Lieut-Colonel Lipton: Can the Minister say whether he has any information about the extent to which wheat is being bought on private account? If he has not that information, how does he decide how much wheat to buy on Government account?

Major Lloyd George: Control does not end until 29th August, and there is no need for traders to buy on private account if they do not wish to do so, because the Ministry will continue to supply them to their full requirements.

Education Authorities (Supplies)

Mrs. Mann: asked the Minister of Food by how much supplies to education authorities for school meals have been reduced since the price increase; and in respect of what items of diet.

Major Lloyd George: I regret that this information is not available.

Mrs. Mann: Will the right hon. and gallant Gentleman try to get this information made available, because it is of the utmost importance?

Major Lloyd George: School meals, catering establishments and individuals— like the hon. Lady—might all be supplied by the same supplier. The only responsibility to the Ministry of these traders is to give the total non-take-up of rations, regardless of any particular category. If the hon. Lady wants any information about school meals she had better put down a Question to my right hon. Friend the Minister of Education.

Sweets Supplies, Kilcreggan

Mrs. Mann: asked the Minister of Food if he is aware that the only confectioner, Rossi, in the burgh of Kilcreggan has been without sweets of any kind during Coronation week and for three weeks before that; and if he will remedy this situation to ensure supplies to Mr. Rossi.

Major Lloyd George: I am informed that there are four retailers of sweets in Kilcreggan and that there have been no complaints from the public of their inability to obtain supplies. According to his own statement the retailer in question has regularly received supplies from the more popular manufacturers but has experienced some delay in deliveries of boiled sweets by wholesalers.

Meat Ration

Mrs. Mann: asked the Minister of Food if he is aware that the meat ration is reaching the housewife in fat pork and mutton; and if he can take steps to ensure adequate supplies of beef.

Major Lloyd George: During the last four weeks pork and mutton have, on average, represented only about 28 per cent. of the value of the meat ration. Over that period beef has averaged 30 per cent. and lamb, mainly first quality, 42 per cent. Beef supplies will increase in the next few months with the seasonal rise in home-killed cattle.

Mrs. Mann: Can the right hon. and gallant Gentleman say what percentage of fat is being supplied with pork and mutton? Can he also say why housewives should be charged the price of meat for fat?

Major Lloyd George: An allowance is made for fat. I have answered the Question. The hon. Lady was talking about the meat ration, and saying that the whole ration reaching the housewives was fat pork. In fact, all told only 28 per cent. is mutton and pork.

Milk Consumption

Mr. Willey: asked the Minister of Food the consumption of full-price fresh milk for the month of May, 1953.

Major Lloyd George: The provisional estimate is 113 million gallons.

Bacon (Prices)

Mr. Willey: asked the Minister of Food the present average costs of imported and home-produced bacon, respectively.

Major Lloyd George: I would refer the hon. Member to the reply given to my hon. Friend the Member for Newbury (Mr. Hurd) on 23rd January, 1953.

Mr. Willey: In view of the marked disparity between those prices, would not the right hon. and gallant Gentleman agree that it is not very business-like to discourage our Continental suppliers, and that there seems to be a case for a more realistic inquiry into home production costs?

Major Lloyd George: I do not know what the hon. Gentleman means by "discourage our Continental suppliers."

Eggs

Mr. Willey: asked the Minister of Food what instructions about storage have been given to foreign suppliers of eggs.

Major Lloyd George: In April and May we asked Denmark and the Irish Republic to store on our behalf, for varying periods, a proportion of the eggs that they would otherwise have shipped under contract. They are not now putting any eggs into store for us.

Mr. Willey: Would not the right hon. and gallant Gentleman agree that we gave the Danes instructions to cancel the storage of eggs at the same time that we gave instructions to the Poles to store eggs? The trade is very discouraged by this lack of efficiency in dealing with eggs and think that if they are to be freed they should be freed from incompetent interference by the Ministry.

Major Lloyd George: The fact of the matter is that, contrary to the hon. Gentleman's statement, the Poles are unable to store any eggs. With regard to the supply position, the hon. Gentleman should know by now that there is no shortage of eggs. If all the eggs that have been stored had been released, it would have made a difference of one-eighth of an egg per head per week.

Mr. Willey: If it is right that there is no shortage of eggs, why has the price gone up?

Major Lloyd George: I should think the hon. Gentleman, with his experience in this office, should know that egg prices vary according to the season.

Oral Answers to Questions — RESERVE FORCES (LORD MONTGOMERY'S SUGGESTIONS)

Mr. Shinwell: asked the Prime Minister whether it is the intention of the Government to reorganise our reserve forces to correspond with the suggestions made by Field Marshal Montgomery in recent speeches.

The Prime Minister (Sir Winston Churchill): Any suggestions made by an officer of Lord Montgomery's standing and long experience will, of course, receive careful consideration.

Mr. Shinwell: Does that mean that they are receiving consideration at the present time?

The Prime Minister: They are receiving consideration. The whole organisation of our reserve forces is kept constantly under review. These proposals

are receiving consideration, but what will be done about them I cannot possibly say.

Mr. Shinwell: Is not the right hon-Gentleman aware that some of the suggestions made by the Field Marshal are excellent in their nature, and that if they were accepted it would lead to economies in the organisation of our Forces? Would the right hon. Gentleman see that the Ministry of Defence pay full attention to the matter?

The Prime Minister: I am sure that the Minister of Defence will be glad to know that in this matter, if he took action in the direction suggested, he would have the support of his predecessor.

Oral Answers to Questions — DEFENCE EXPENDITURE

Mr. Harold Davies: asked the Prime Minister if he will present the House with a White Paper outlining Her Majesty's Government's policy to meet the economic repercussions of a slowing down of the tempo of armaments production.

The Prime Minister: There is no evidence that adjustments in the United Kingdom Defence Production Programme are having any such economic consequences as would justify the issue of a White Paper. Actual defence expenditure, including production expenditure, has not been reduced. The estimate for production and research in 1953–54 is £746 million against £652 million in 1952–53. The economic policy of the Government has of course been fully debated on the Budget.

Mr. Davies: While thanking the Prime Minister for that answer, and admitting that, maybe, defence expenditure has not at present dropped quite so much, might I ask the right hon. Gentleman whether he is aware that it would be a very precarious economic position if the country only depended upon exports from the armament industry? Also, is he aware that the Oil and Materials Secretariat has said that there is an unlimited market for oil equipment in Asia, and that we are proud of the progress of that industry and also the petro-chemical industry? Will he press at the Bermuda Conference for freedom on the trade routes and in the markets of Asia and Eastern Europe?

The Prime Minister: I shall be able to consider the supplementary question better when I have had the advantage of reading it in the OFFICIAL REPORT.

Mr. Lee: Has the Prime Minister seen the report of the speech made by Mr. Holt, the Australian Minister of Labour, at Geneva yesterday in which he said there was no international realism in this matter and that the end of the war in Korea could be the start of a depression on a world-wide scale? Will the Government begin to plan now for a change in our production in order to give our engineering industry an opportunity to readjust itself?

The Prime Minister: I have not had the advantage of reading the statement referred to.

Oral Answers to Questions — EVEREST EXPEDITION (WELCOME)

Mr. M. Lindsay: asked the Prime Minister whether the Government will arrange an official reception for the Mount Everest Expedition on their return.

The Prime Minister: I am sure that the organisations which sponsored the expedition will make adequate arrangements to welcome its members on their return. In addition, the Secretary of State for War will meet Colonel Hunt and his party, and express to them the admiration of Her Majesty's Government for their memorable achievement.

Mr. Lindsay: Is the Prime Minister aware of the general disappointment that it has not been thought appropriate to offer the Indian subject, Tensing, an award comparable with that given to the New Zealander?

The Prime Minister: That does not entirely rest with Her Majesty's Government.

Oral Answers to Questions — EGYPT (GERMAN TECHNICIANS)

Mr. Edelman: asked the Prime Minister if he is aware that German technicians, officially attached by the West German Government to the Egyptian Government, have been engaging in activities prejudicial to the safety of British

troops in Egypt; and what representations he has made to Dr. Adenauer on this subject.

The Prime Minister: I understand that these technicians were recruited directly by the Egyptian Government and are not controlled by, or in the service of. the Federal German Government. Nevertheless, I raised this subject with the German Federal Chancellor during his visit to London. He undertook to make a full investigation, and that is now being done. I should prefer to wait for the results of this investigation before taking the matter further.

Oral Answers to Questions — ANZUS DEFENCE PACT

Mr. Wyatt: asked the Prime Minister whether he will make a statement on his discussions on defence matters with the Prime Ministers of New Zealand and Australia, with particular reference to the ANZUS Defence Pact.

The Prime Minister: I have no statement to make on this question at the present time.

Mr. Wyatt: The Prime Minister has been giving the same answer to this question for the last 18 months. Is he aware that he told the House before the Commonwealth Conference met that he was going to discuss the matter at the Conference and would then have something to tell us about it? Has he not yet found out from talking to the Prime Ministers of New Zealand and Australia whether they want us in the ANZUS Defence Pact? Cannot he tell us anything about it?

The Prime Minister: No, Sir. I have no statement to make in the subject at the present time.

Mr. Shinwell: Will the right hon. Gentleman be good enough to say—hon. Members are obviously interested in the matter—whether the Commonwealth countries are making a satisfactory contribution to Commonwealth defence?

The Prime Minister: Whether they are making a satisfactory contribution is a different question. The hon. Gentleman who put down the Question knows it is entirely irrelevant. I could not be a party to leading the House astray.

Mr. Shinwell: I am sure the right hon. Gentleman never leads the House astray, but is he aware that in the Question reference is made to some aspects of Commonwealth defence? Surely he can say whether he is satisfied with the contribution made.

The Prime Minister: I always think it is a wonderful thing that these great Dominions over whom we have no authority of any kind have at every stage in our fortunes in these tragic years sprung forward in the common cause, and I am certainly not going to attempt to appraise the relative merits of their various contributions in time of peace. I am sure that our position in the world is maintained by our close and happy relations with them.

Mr. Wyatt: Does the Prime Minister mean that he has now dropped all his inquiries into the relationship between ourselves and the ANZUS Defence Pact and that we are never going to hear any more about the matter in the House?

The Prime Minister: I can really reassure the hon. Gentleman upon that subject. I have the greatest interest in it. I did not like the ANZUS Pact at all. We did not have an entirely clean sheet on the matter when we took over power. I did not like it at all, and I am greatly in hopes that perhaps larger, wider arrangements may be made which will be more satisfactory than those which are at present in force. But, as I say, it is not a matter where one can give directions. One has to endeavour to use influence and allow time to work.

Oral Answers to Questions — MINISTRY OF DEFENCE

Officers' Pensions

Air Commodore Harvey: asked the Parliamentary Secretary to the Ministry of Defence how many officers of the three Services have commuted their retired pay since the war ended.

The Parliamentary Secretary to the Ministry of Defence (Mr. Nigel Birch): I am informed that there have been about 7,500 commutations of officers' retired pay since the end of the war. This figure includes cases in which an officer has commuted more than once. It would not

be possible without lengthy research to determine the precise number of individuals concerned.

Air Commodore Harvey: Will my hon. Friend take these very large figures into account when considering the needs of retired officers and the question of increasing their pensions?

Mr. Birch: Yes, Sir, but my hon. and gallant Friend will realise that people do not necessarily commute only for reasons of poverty. They often do so because they want to start a business.

Mr. Bowles: Will the hon. Gentleman clear up one mystery to my mind? How can an officer commute his retired pay more than once?

Mr. Birch: He may commute £100 a year of it at one time and another £100 a year subsequently.

Mr. Marlowe: asked the Parliamentary Secretary to the Ministry of Defence the amount of the basic pension paid to a lieut.-colonel of 25 years' service who retired in 1921; what is the basic pension paid to the same officer today; and whether he will also give the same figures in terms of purchasing power according to the cost-of-living figures issued by the Treasury.

Mr. Birch: The retired pay for a combatant lieut.-colonel in 1921 would have varied between £450 and £540 a year, according to length of service in the rank. He would now be getting between £440 and £525 a year, on which he would, if qualified, be eligible for increases under the pensions increase schemes. The present cost of living figure is about 160 per cent. of that of 1921, but no accurate figure can be given as there is no continuous index covering the period. On this basis the 1921 equivalents are about £300 and £350.

Mr. Marlowe: Does not my hon. Friend regard it as thoroughly discreditable that these officers should be worse off now than they were 20 or 30 years ago? As the Chancellor of the Exchequer has just sat beside him, will he try to get some money out of his right hon. Friend in order to deal with this matter properly?

Mr. Birch: A great many of us are worse off than we were 20 or 30 years ago.

Lieut-Colonel Lipton: In giving further consideration to the matter, will the Parliamentary Secretary bear in mind some very disturbing figures released by the Minister of National Insurance the other day which show that the number of ex-Service pensioners forced to draw National Assistance has increased by thousands during the past 12 months?

British Military Inventions (U.S.A.)

Mr. Wyatt: asked the Parliamentary Secretary to the Ministry of Defence the conditions governing the giving of information to the United States of America about British military inventions; and whether he will arrange that, in future, such information will not be given unless payment and full acknowledgment is made for those British military inventions adopted, either in whole or in part, by the United States Government.

Mr. Birch: The conditions are set out in an agreement between Her Majesty's Government and the Government of the United States published as Command 8757. Her Majesty's Government regard them as satisfactory.

Mr. Wyatt: Is not the hon Gentleman aware that there is considerable dissatisfaction among British military inventors because they are continually inventing new devices to do with warfare which are taken over by the Americans, and sometimes some slight adjustment is made and no royalties are paid and no acknowledgment is given, and the invention is then claimed as an American invention?

Mr. Birch: The agreement provides for the protection of private rights and, in particular, sets up a Technical Property Committee which is a forum for discussing such cases as the hon. Member has in mind.

Mr. Wyatt: It is not only a private question. This applies also to inventions made under the official auspices of the Government.

Mr. Birch: Under the agreement these are freely exchanged between the two Governments.

Orders of the Day — FINANCE BILL

Considered in Committee [Progress, 16th June].

[Sir CHARLES MACANDREW in the Chair]

Clauses 15 and 16 ordered to stand part of the Bill.

Clause 17.—(CHANGES IN OWNERSHIP OF TRADE, ETC., OR TERMS OF PARTNERSHIP.)

3.31 p.m.

The Chairman: Mr. Stevens.

Mr. Eric Fletcher: Mr. Eric Fletcher (Islington, East) rose——

The Chairman: Did the hon. Member for Islington, East (Mr. E. Fletcher) stand up just now when I called him?

Hon. Members: No.

Mr. Fletcher: It was difficult to hear what was happening, Sir Charles.

The Chairman: I called the hon. Gentleman, whose name appears on the first Amendment on the Paper to this Clause. I called the names of the two other hon. Members whose names appear on the Amendment. Then I called "Mr. Stevens," to move his Amendment.

Mr. Fletcher: I could not hear, Sir Charles, because there was so much noise. I apologise, of course.

The Chairman: I have now called the next Amendment. The hon. Gentleman the Member for Islington, East, is not sitting in his usual place, but, still, I did not see him stand up when I called his name.

Hon. Members: He did not.

Mr. Hugh Gaitskell: With very great respect, Sir Charles, we have had a very reasonable discussion on this Bill so far. It was the case that a great deal of noise was going on. I am sure the Government will raise no difficulty about this, and I would respectfully suggest to you that it is not unreasonable to allow my hon. Friend to move his Amendment.

The Chairman: I am bound by the rules of order. I, personally, should be perfectly happy to allow the hon. Member to move his Amendment, but I


am bound by the rules. I had already called the hon. Member for Islington, East. I called, "Mr. Fletcher, Mr. Douglas Houghton, Mr. Albu." I looked around. No one stood up. Then I called the next Amendment.

Mr. Fletcher: It was very difficult to hear you, Sir Charles. I apologise for sitting here rather than my usual place.

The Chairman: Order. I have called the next Amendment. The hon. Gentleman did not stand up and attract my attention when I called him. I looked round, and I called three names in connection with this Amendment. No one stood up. Therefore, I went on to the next Amendment.

Mr. Fletcher: With great respect, Sir Charles, there was so much noise in the Chamber that it was very difficult to hear what names you were calling. We were dealing with Clauses 15 and 16. Will you allow me to move my Amendment?

The Chairman: If the Committee will allow me to do so, I propose this course. If the hon. Gentleman assures me that he was in the Committee when his name was called, I will allow him to move his Amendment.

Mr. Fletcher: Yes, Sir Charles, I was here.
I beg to move, in page 12, line 27, to leave out subsection (2).
Clause 17 is a somewhat complicated Clause which is designed to give effect to some of the recommendations of the Mil-lard Tucker Committee dealing with the abstruse subject of the taxation of partnerships where there has been a change in the constitution of a partnership firm. It will be appreciated that the bulk of the Clause deals with what is to take place when there is a change in the constitution of a firm.
Broadly speaking, the Clause reverses the present option when a change takes place: In other words, whereas at present when a change takes place in the constitution of a firm there is an option on the partners to elect that the change will operate as a cessation or termination of the business for taxation purposes; in future, pursuant to the recommendations of the Tucker Committee, there will be an automatic cessation for taxation purposes, but the partners will have an

option to elect that for taxation purposes the partnership should be treated as if it were continuous.
In addition to that, subsection (2), which it is the object of this Amendment to delete, deals with a different but related subject. It deals with what is to happen when there is a change in the allocation of profits among the partners of a partnership firm. The object of this Amendment is to delete the subsection, for a variety of reasons.
In the first place, it does not carry out the recommendations of the Tucker Committee, not that that in itself would be an objection, because, after all, the recommendations of the Committee are not sacrosanct. But I think what has emerged from the drafting of this subsection is that the Government, in making an attempt to carry out and even extend the recommendations of the Tucker Committee, have exposed an underlying fallacy in the recommendations of that Committee.
If I may read exactly what the Tucker Committee say, it will, perhaps, make it easier to appreciate the significance of this Amendment. The Tucker Committee say, in paragraph 72 (d):
Where there is a change in the basis of allocation of profits among the partners the cessation provisions should apply if, and only if, there is a formal dissolution in writing of the partnership followed by the creation of a new partnership, and notice in writing is given to the Inland Revenue within a specified period.
This subsection, I think the Solicitor-General will agree, does not purport to adopt the ipsissima verba or indeed the object of the Tucker Committee with the limitations which it contains. It seeks to go very much further. It seeks to provide that in future, if there is any variation in the allocation of the profits of a partnership among the partners interested, then any one partner can have the right to say that these shall for taxation purposes be profits on cessation.
The fallacy underlying the Tucker Committee's recommendation is this. They appear to assume that all partner, ship agreements are recorded in writing, because they refer to the necessity for a document of dissolution. It is notoriously not the case that all partnership agreements are recorded in writing. They may well be among stockbrokers, solicitors, accountants, and other professional


people, but there are throughout the country a large number of small traders carrying on business in partnership who have never found it necessary to record the terms of their partnership in writing. There are something like 20,000 assessments of partnerships, of which only 4,850 are for amounts of over £5,000. The subject with which we are dealing is the liability to taxation of this manifold variety of traders, as well as professional people, who carry on business in partnership.
It has always been understood that people who carry on business in partnership should have the maximum amount of fluidity and flexibility for the kind of arrangements they wish to make among themselves, because they vary from one trade to another and from one business to another. There may be family businesses in which all the partners are members of one family, or partnerships in which there is no family relationship, or businesses in which new partners frequently come in and others go out. Very often there are salaried partners.
It is by no means always the case that partners decide at the beginning of the year that the profits shall be divided in such and such percentages among themselves at the end of the year. They may well decide, and frequently do, that each partner snail have a certain minimum salary, and that after the salaries have been paid the resultant net profits shall be divided. They may even not make their final arrangements at the beginning of the year.
One of the vital objections which I see to this subsection is that in future it will make it extremely difficult, if not impossible, for any firm carrying on business in partnership to make any change in its domestic arrangements as the year proceeds, because if it does it will come up against the difficulty that the change, however slight, may involve it in being subject to a totally different basis of taxation. Everybody knows that electing whether to be taxed as if there has been a cessation or as if the business is a continuing one involves an element of gamble, because more often than not the option has to be exercised at a time when the past profits are known, and when some reasonable guess may be made of the current profits, but when the future

profits cannot possibly be foretold. It is therefore very difficult to tell whether it will suit all or some of the partners to exercise the option. Parliament has always recognised that there should be that option in appropriate cases, that the taxpayers should have that choice where there has been a change in the constitution of the firm, which is reasonable when some partners go out and cease to trade and others come in.
The arguments which apply where there is a change in the constitution are quite sound, but those same arguments cannot possibly be held to justify giving an option to any one partner to elect for a change in the whole basis of taxation merely because there has been some variation in the way in which the partners divide the profits among themselves. Let me take a specimen case, with which the Solicitor-General will no doubt be familiar. Frequently when there are salaried partners it is desired to increase somebody's salary. It is no less desirable to increase the salary because the man happens to be a salaried partner, but such an increase in salary would amount to a change under subsection (2), because it would be a change
in the manner in which the partners share the profits or gains of the trade "—
or, at any rate, I think the Solicitor-General would agree it might well be so construed.
3.45 p.m.
If there were a change of that kind— and it need not be an increase in the basic salary; it may be an increase in somebody's commission—any change, however trivial, would mean that any of the partners could elect to exercise this option under subsection (2) perhaps to the detriment of the whole firm, or perhaps to the detriment of other partners. The mere fact that such a contingency could arise would make it much more difficult for firms trading in partnership to grant that kind of increase in salary or to make that kind of change which nowadays is a commonplace of trading relationships. Therefore, my first objection to this subsection is that it would operate to make it more difficult for firms to carry on their business.

The Solicitor-General (Sir Reginald Manningham-Buller): Perhaps I might interrupt the hon. Gentleman. His first


objection appears to be a pretty weighty one, and perhaps I might indicate that, for reasons which I will give briefly, we propose to accept the Amendment. I therefore hope it will not be necessary for the hon. Gentleman to elaborate his second, third and fourth objections.

Mr. Fletcher: I am very pleased to hear that, because in fact I have six other arguments. However, in view of that very welcome intervention by the Solicitor-General, I obviously shall not find it necessary to weary the Committee with the full force of the further arguments I was proposing to adduce for this Amendment.

The Solicitor-General: I should like just to say this. We are glad to accept this Amendment. We have given careful consideration to this point again after the hon. Gentleman put down his Amendment. This Clause does seek to implement the principle that lies behind one part of the Millard Tucker Report. The really important provision with regard to partnerships is contained in subsection (1), but we feel that there is great force in the argument that the insertion of subsection (2) might act as a deterrent to variations of salaries which might be desirable in partnerships. We therefore propose to accept this Amendment, on the understanding that it may be necessary to make some consequential Amendments at a later stage, although it is unnecessary to deal with them at the present moment.

Mr. Fletcher: If I may say so, I am very grateful to the Solicitor-General and the Government for having accepted this Amendment.

Amendment agreed to.

Mr. G. P. Stevens: I beg to move, in page 13, line 26, to leave out from "forty-two." to "there," in line 27.
Section 343 of the Income Tax Act deals with the transfer to companies of the business of firms and the carrying forward of losses of the firm to the company if the persons who own the shares in the company are the same, in broad terms, as the persons who were partners in the firm, or an individual in the case of a single-man company. Subsection (3) provides that if there is a change in the trade—and under the Clause the trade is treated as permanently discontinued—

but the same person continues to be engaged in it, the new firm will succeed to the available losses of the old. I am very glad to see that subsection (3, c) extends this right of succession to available capital allowances, but the words which I propose should be omitted exclude that concession of available capital allowances when the successor is a limited company.
It seems to me that what is being taxed in this case is not so much individuals or limited companies, but in fact the profits on a business, and for Income Tax purposes the capital allowances are deducted from profits or added to losses as the case may be. When there is a change from a firm to a limited company, it is true that the legal ownership becomes different, but it is the same business, they are the same profits and they are, I think, the same capital allowances.
I wonder, therefore, whether the Clause, as it stands at present, is not rather illogical. The capital allowances are available if it is a firm which is a successor to the business but are not available if it is a limited company which succeeds and has the same profits and the same business. I do not see the reason for differentiating, and I hope that, if my hon. and learned Friend agrees, he will accept the Amendment.

The Solicitor-General: I regret to have to disappoint my hon. Friend. The Government cannot accept this Amendment, and the short answer to the point which he has put forward so ably is that Section 343 of the Income Tax Act, 1952, has no application to capital allowance and consequently it is excluded from the scope of subsection (3, c) of this Clause, which merely ensures that the present position shall continue.
It is quite inappropriate to propose any amendment of the law in that respect which would affect transfers to a company by partnership but would not affect any change in relation to similar transfers by an individual. Indeed, I think the effect of the Amendment, if we accepted it, would be that it would apply to some partnerships in which, before the transfer to the company, there had been a change in partnership to which succession treatment had been applied. I hope that I have said enough to satisfy my hon Friend that we have considered this point


very carefully; but for the reasons which I have advanced we regret that we are unable to accept the Amendment.

Mr. Stevens: Although I am disappointed, I am satisfied with the hon. and learned Gentleman's reply, and therefore I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment made: In page 13, line 44, leave out "or (2)."—[Mr. E. Fletcher.]

Mr. E. Fletcher: I beg to move, in page 14, line 5, at the end, to insert:
Provided that where such a change arises by reason of the death of a partner it shall not be necessary for such notice to be signed by the personal representatives of the deceased partner.
This Amendment is designed to give effect to a specific recommendation of the Tucker Committee. It does not deal with the subsequent part of the recommendation, namely, the situation in which, where there is a change in the constitution of a firm, any one partner can obtain the benefit of the option to elect that there shall not be succession by giving notice to all the other partners that he desires the partnership to be treated for taxation purposes on a continuing basis.
In order to exercise that option, notice has to be given to all the other partners. A change in the constitution of a firm very often occurs by reason of the death of a partner, and if a partner dies, and therefore there is a change, notice cannot be given to a partner who is dead, and notice has to be given to the personal representatives.
The Tucker Committee specifically deals with the situation in paragraph 72 (b) where they say:
(Where the change arises by reason of the death of a partner, the surviving partners shall be entitled to exercise the option without being required to secure the agreement of the deceased's personal representatives.)
I do not know whether the Government accept that recommendation or whether they do not, but, if the Government accept it, then it is clearly necessary to have some words in the Clause to give effect to it. I think that the appropriate words to insert at the end of subsection (4) would be:
Provided that where such a change arises by reason of the death of a partner it shall not be necessary for such notice to be signed by the personal representatives of the deceased partner.

It will be observed that, in order effectively to exercise the option, all the partners have to concur in the exercise of the option. That involves, therefore, the representatives of the deceased partner. I do not know whether the Solicitor-General thinks that the matter is sufficiently dealt with in the words at the end of subsection (7) because, as I understand the Clause, the concluding words of subsection (7) deal with a totally different subject. They deal with a contingency which would have operated if subsection (2), which is now omitted, had remained in the Clause. I hope that, in order to make it clear that the consent of the deceased partner's representatives is to be dispensed with, these words may be added to the Clause.

The Solicitor-General: I am sorry to have to disappoint the hon. Gentleman, but I cannot accept the Amendment. He is quite right in saying that the Amendment which he proposes would bring this part of the Bill more into line with the recommendation of the Millard Tucker Committee, and it is a deliberate decision of the Government, for the reasons which I am going to explain very shortly, to depart from that provision.
The effect of subsection (1), as the hon. Gentleman will appreciate, is to reverse the present practice. Under the present practice, the partnership will continue unless all the partners elect that it should cease. Under the changes recommended by the Millard Tucker Report and given effect to by this Bill, we get the reverse, that there is a cessation unless all the partners agree that it should carry on. The reason for that change is that it has been found that automatic continuance of a partnership may result in great inequality and hardship on individual partners.
If we once accept that position, and stipulate that all the partners should have to agree that the partnership, although changed, continues, it seems quite illogical to say that we should not also require to have the assent of the representatives of the deceased partner, because if we omit the representatives of the deceased partner from the list of those who have to assent, it may well mean that the deceased partner's estate would be penalised by taxation in a way which might happen now and in a way which this Bill is seeking to cure. After all, if a partner


has retired but is surviving, he will have something to say on whether there should be cessation or not.
4.0 p.m.
It seems to us that here we have to depart from this recommendation of paragraph 72 (b) of the Millard Tucker Report in order, as far as we can, to ensure that there is equity and fairness, and that the estate of a deceased person may not, in particular cases, suffer inequalities regarding taxation by reason of the omission of the necessity to consent. I hope that that explanation will satisfy the hon. Gentleman that we are right in making this small variation from the recommendations of the Report.

Mr. E. Fletcher: I am very grateful to the Solicitor-General for having given that explanation, and, personally, I was very impressed with what he said. In the circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause, as amended, ordered to stand part of the Bill.

Clause 18.—(PAYMENTS BETWEEN ASSOCIATED COMPANIES IN RESPECT OF LOSSES.)

Mr. Stevens: I beg to move, in page 15, line 14, to leave out "for tax purposes."
I hope it will be convenient to the Committee if, with this Amendment, we discuss the next four Amendments in lines 17, 40, 43 and in page 16, line 20, to leave out the same words, and also the Amendment in page 16, line 22, to leave out from "by," to end of subsection, and insert:
recognised accounting principles and after capital allowances.
Clause 18 is one which I welcome very much, because it gives Income Tax relief to associated companies where the loss of one of those associated companies in a given year is made up by payments, under an agreement between the two companies, by one of the other associated companies in the group which has made a profit. I should be grateful if my hon. and learned Friend, when he replies, would indicate what kind of agreement is specified—whether it is an agreement under seal, an exchange of letters, or whether even a verbal agreement would be sufficient.
By this Clause the relief is limited to the lesser amount of the Income Tax surplus of the payer or the Income Tax deficit of the receiver, and these words "surplus" and "deficit" are defined under subsection (5) of the Clause. I know how difficult it is accurately to define these words, but I am not happy myself about the definitions which are given here, because these words are defined in such a manner that they are neither fish nor fowl nor good red herring.
The fact is that surpluses or deficits are not profits or losses which might be shown in the accounts of either of the companies concerned, nor are they even the Income Tax assessments of the companies concerned, save possibly in the case of a new business, for the simple reason that Income Tax assessments are normally based upon the preceding year's profits or losses, as the case may be, and not upon those made in the year of assessment.
As it stands, this Clause is unwieldy, and I think it would be difficult to interpret it in practice. I therefore suggest the omission of these words "for tax purposes," and instead the insertion of the words proposed in the last Amendment, which I believe are practical and have the merit of simplicity.

The Solicitor-General: I am sorry once more to have to disappoint my hon. Friend the Member for Langstone (Mr. Stevens), but I really cannot meet him on this series of Amendments. There is more in this than a mere matter of drafting, as I shall seek to indicate.
What my hon. Friend wants to do, by the deletion of the words "for tax purposes," would mean the adoption of a standard which might be easy to recognise but which could vary a great deal indeed. When one talks about recognised accountancy principles, recognition may vary from day to day and the principles may not always be agreed upon. It is extremely desirable that there should be some element of precision in these calculations so as to narrow, as far as possible, the area of dispute between the taxpayer and the Inland Revenue.
I am told that this is not just a matter of drafting in that, if we accept this proposed standard of recognised accountancy principles, it would, in fact, give


rather more latitude to companies than does the Clause as at present drafted. It might bring out larger figures of deficits which could be the subject of payments by the associated companies, and in principle there does not seem to us to be any reason for allowing this. In our view, it is right that, for Income Tax purposes, surpluses and deficits should be calculated according to Income Tax principles.
I must say that I do not think that my hon. Friend's fears about the difficulty of calculating according to Income Tax principles will be realised in practice. Those of us who have to look at these matters from time to time may take the view that it would be much more easy to arrive at the right result by calculating according to Income Tax principles than by adopting recognised accountancy principles, which may vary between industries, and, indeed, not only between industries but between different parts of the country.
If I may give an example, for the computation of a surplus or deficit, one could take, on recognised accountancy principles, the replacement cost basis, which is certainly not recognised for Income Tax purposes. When we are dealing with Income Tax here, it does seem to be right to take the standard which is laid down in the Bill.

Mr. Stevens: My hon. and learned Friend has said that it was better that this business of surplus and deficit should be calculated in accordance with Income Tax principles, but surely that is just what this subsection does not do. The subvention payments are made in respect of the current year—the year of assessment, as it were—but the adjustments provided by the Clause are based, in accordance with normal Income Tax principles, upon the preceding year and can have no relation at all to the current year.

The Solicitor-General: If my hon. Friend will look at subsection (5), he will see the matter defined in a certain way which, I think I am right in saying, accords with Income Tax principles.

Sir Frank Soskice: May I also hope that the Solicitor-General will, as I think he hinted just now, reject this Amendment? Am I not

right in saying also that a good part of the objective which the hon. Gentleman has in mind is to some extent achieved, because profits are computed on accountancy principles, subject to any correction which the Income Tax Acts make in those accountancy principles? Broadly speaking, is not the object which he has in mind already met in the context of the Bill now before the Committee?
I would venture to hope that the Solicitor-General will resist the Amendment. As matters stand, one knows at least that there is precision, and if one leaves out the reference to the Income Tax Acts, one will substitute for that precision a great deal of uncertainty, and I am sure that the hon. Gentleman would not want to introduce a measure of uncertainty here.

Mr. Stevens: I have paid the greatest attention to such very learned opinions, and, although very disappointed, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Solicitor-General: I beg to move, in page 16, line 46, to leave out from "payments," to "are," in line 2, on page 17, and to insert:
to which the said section one hundred and seventy applies by virtue of section three hundred and eighteen of the said Act or which.
This Amendment is designed to correct a somewhat technical and minor flaw in the provisions of the Clause as it now stands. The flaw is contained in subsection (5, b (iii)). It is more or less of a drafting character, and I do not think that our Amendment makes any practical alteration. I will explain it in detail if the Committee would like me to do so, but its effect will be to remove unnecessary words that are already covered by other parts of the Bill. If I may give an example, some of the matters mentioned in Section 345 (2) of the Income Tax Act, 1952, would already be covered, and there is no need to mention them in this subsection.

Amendment agreed to.

Mr. F. J. Erroll: I beg to move, in page 18, line 3, to leave out from "company," to the end of line 4. and to insert:
assessable in the United Kingdom for tax purposes.


When the Finance Bill was published and when the companies saw this Clause, they were naturally delighted at the arrangements proposed except in one respect, and that was in regard to the companies' subsidiaries operating overseas, because the general wording of the Clause as it now stands is that such arrangements can operate only between companies registered and controlled and operating within the United Kingdom. In many cases there are companies which, although registered and controlled in the United Kingdom, are operating overseas, and it is felt that, as the Clause now stands, these companies will not be included in the benefits of the Clause as a whole.
There is a further type of case where there are United Kingdom registered and controlled companies owning subsidiaries operating overseas, and in those cases it is particularly valuable to have the benefits of this Clause. The Amendment which I am proposing would, of course. make the subvention payments possible for such companies and organisations at a time when we are anxious to see as large overseas development as possible. It would be particularly valuable if the losses in the first few years of an overseas subsidiary could be offset against the profits of the United Kingdom parent company, as will, of course, be possible if this Amendment is accepted, which I hope it will be.

Mr. E. Fletcher: This Amendment is followed by one in page 18, line 3, to leave out from "Kingdom," to the end of line 4, which stands in my name and the names of some of my hon. Friends. It covers the same point, and I gather it is the intention of the Chair that they should be taken together.
The purpose of my Amendment would be to secure precisely the same effect as the Amendment which has been moved by the hon. Member for Altrincham and Sale (Mr. Erroll), and I entirely agree with what he said.
It seems to me that this Clause as it stands discriminates unfairly against companies trading overseas, whether trading overseas through a subsidiary company or whether themselves trading overseas. I could have understood it if there had been a limitation of this Clause designed

to exclude from its benefits English subsidiaries of foreign companies, but I gather that that would be too difficult and probably would not be desirable.
I fail to understand, however, why the benefit of this Clause should be denied to a company which is resident in the United Kingdom but which carries on trading operations elsewhere. I fail to understand why a group of companies, one of which is a subsidiary trading overseas— whether in the Commonwealth or outside it is hardly material—should be denied the benefits of the Clause. I hope the Solicitor-General will be able to accept this Amendment, for the reasons which the hon. Member has given, and which I cordially support.

The Solicitor-General: I am sorry to disappoint to some extent but not entirely my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) and the hon. Member for Islington, East (Mr. E. Fletcher). The fear was expressed by my hon. Friend whether the Clause in its present form covered the case of a company resident and registered here and which has branches operating outside the United Kingdom but where the control rests in the United Kingdom. I think I can assure my hon. Friend that that class of company will certainly be covered by the Clause as it stands.
If I might, I should like to refer him to the First Report of the Royal Commission on the Taxation of Profits and Income, paragraph 12, where he will see stated:
The legal view seems to be well established that the activity of management and control is an integral part of the trade. From this it follows that the trade of a resident corporation cannot be regarded as carried on wholly outside the United Kingdom.
Where we get a resident corporation it will be covered by this Clause in its present form.
The first reason I must oppose the Amendment is that it is unnecessary to make any alteration, and secondly, we could not accept the words proposed in either of these Amendments because there are companies which are not resident here but are assessable for tax in relation to income brought over here and provided by Schedule D, and under the formula proposed by this Amendment they would come within the Clause. The Millard Tucker Committee recommended


that the operation of this Clause should be limited to companies resident in this country, and it is for this reason that I regret that I cannot accept the Amendment.

4.15 p.m.

Mr. Enroll: Could the Solicitor-General make it plain that when he refers to a United Kingdom company with branches overseas he includes subsidiaries overseas which are now controlled by the United Kingdom company? Some branches are not the same as subsidiaries, and that is the important point.

The Solicitor-General: I thought I said that where control lay in a resident company, then it is impossible to say that the trading is carried on wholly outside the United Kingdom.

Mr. E. Fletcher: May I put one other case to the Solicitor-General? I can appreciate that where there is control here such a company would come within the Clause as it now stands, because such a company would be deemed to be carrying on trade partly in the United Kingdom; but I have in mind the case of the subsidiary company trading overseas in mining operations or some such activity, where the control is abroad in the sense that there is a local board. It could not be said for the purposes of Income Tax administration that the control was exercised here.
May I put this further point to the Solicitor-General? The Millard Tucker Committee recognised that some condition must be satisfied to enable companies to obtain the benefit of this provision. They said that both companies entering into an agreement to make a subvention payment as contemplated by this Clause, must be companies which are treated as resident in the United Kingdom for Income Tax purposes. But would not the Solicitor-General agree that the full effect is given to that recommendation by the first condition in subsection (9), which says that the Clause will apply only to a company resident in the United Kingdom? Why is it necessary to go on and add the further limitation that the company shall be carrying on trade wholly or partly in the United Kingdom?
I gathered from what the Solicitor-General said that it was not intended to exclude from the benefits of this Clause subsidiary companies which had, in fact, carried on their operations overseas. All I am asking is that he should make sure that the Clause is wide enough to extend its benefits to subsidiaries whose operations are overseas, whether or not the control is technically exercised by the parent board in this country or by a local board overseas.

The Solicitor-General: This Clause is limited in its operation to companies which are resident in the United Kingdom and carrying on trade wholly or partly in this country. Therefore, a subsidiary company, to qualify under this Clause as part of the group, would have to be one resident here and carrying on trade wholly or partly in the United Kingdom. With regard to those last few words, may I repeat that there is no doubt that if the company is resident here, managing activities outside this country but exercising control here, whether it be a principal or a subsidiary company, it is engaging in trade within the United Kingdom. Therefore, the cases which have aroused the anxiety of my hon. Friend are fully covered by the Clause as it stands.

Mr. Erroll: I want to look carefully at the reply of the Solicitor-General and, if necessary, to raise the matter again on Report. In the meantime, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Solicitor-General: I beg to move, in page 18, line 21, at the end, to insert:
(11) Sub-paragraph (ii) of paragraph (b) of subsection (5) of this section shall not be taken to apply to any part of the allowances for a year of assessment earlier than the year referred to in the sub-paragraph, notwithstanding that it is carried forward to the year so referred to under subsection (2) of section three hundred and twenty-three or subsection one of section three hundred and tweny-four of the Income Tax Act, 1952.
This Amendment has been tabled by my right hon. Friend to make clear a point about which some doubt was felt and to which attention was called by my hon. Friend the Member for Langstone (Mr. Stevens). There is some doubt as to the extent to which unexhausted allowances can be carried forward. But for this Amendment it might be argued


that, in the calculation contemplated by this Clause, there could be carried forward and brought into account allowances from a previous year which had not been exhausted. We have considered that, and we have come to the conclusion that all doubts should be removed and that it should be made absolutely clear, as this Amendment does, that for the purpose of calculating losses under this Clause one is not entitled to bring into account unexhausted capital allowances from the previous year.

Mr. Stevens: I am glad that the Solicitor-General has taken note of something which I put down, although I am not entirely certain that he has taken the right kind of note. There must be many cases where even an associated company may be involved in material capital expenditure, in respect of which substantial initial allowances are given; for instance, where the reorganisation of a factory is concerned initial allowances may not be absorbed by the profits of the year because, if substantial reorganisation is going on, the factory would not be in a position to turn out large quantities of goods which would give rise to those profits. Therefore, it seems inequitable that there is no provision in respect of such subvention payments for a carry-forward of those initial allowances. Is this the last word of the Government on this matter or will they look at my words yet again? I hope so.

The Solicitor-General: My hon. Friend's words were, as usual, absolutely clear. I do not think I can hold out any hope to him that this matter will be changed on any further consideration. What we are proposing is fully in line with the Profits Tax provisions relating to groups of companies and, having considered the matter, we have come to the conclusion that the doubt should be resolved in the way proposed by this Amendment.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 19.—(UNREMITTABLE OVERSEAS PROFITS.)

Mr. Erroll: I beg to move, in page 18, line 41, to leave out from "territory," to the end of line 44.
Clause 19 confers a real benefit on those companies which are unable to remit their overseas profits to this country. There is, however, a rather curious feature in subsection (1) where the individual will be granted remissions under paragraph (a) if he is prevented from transferring the amount by reason of some action of the overseas Government and, under paragraph (b), provided that there is no generally recognised market value in the United Kingdom for the currency of the territory in question.
Paragraph (a) is very good but paragraph (b) is questionable and we seek clarification of what is meant. As the words stand now in the Clause, it looks as though the Government are prepared to sanctify the existence of a "grey" market in currency in this country and I am sure that cannot be their intention. In the first place, the phrase "generally recognised market value" would have the effect that the claim for postponement could not be made where there is no official market for the currency but where, however, there is an unofficial market which is in the literal sense of the term "generally recognised." That is a most undesirable state of affairs to write into a Finance Bill.
Secondly, any rate of exchange which may exist in this generally recognised but highly unofficial market is likely to be a very depreciated rate because of the narrowness and the colour of the market. The general effect, therefore, is that the taxpayer will not be able to claim a postponement of assessment, although the currency is blocked, where there is the unorthodox or "grey" market in which he can convert to sterling, even though at a material loss.
My Amendment may not be perfectly drafted because it is not possible to get an explanation from the Treasury Bench of what was in the mind of the Government when the Clause was drafted. In the Amendment we propose the deletion of most of paragraph (b) in order to seek clarification, because we believe that if that part of the Clause were deleted we would eliminate an undesirable feature of it.

Sir F. Soskice: A number of my hon. Friends and myself put down our names in support of this Amendment and there is little that I desire to say in support


of it, because the case has already been made in terms which I should like to adopt. We on this side of the Committee put down the Amendment for precisely the same reason as the hon. Member for Altrincham and Sale (Mr. Erroll) has indicated.
I do not see what is the object of having paragraph (b). I concede that when attempts were made on previous occasions to try to exempt this foreign blocked income, it was felt that there were administrative and other difficulties in the way and that there would be possible avenues for abuse if some such provision as now appears in the Clause were put upon the Statute Book. No doubt the object of paragraph (b) is in some way to block possible abuse or evasion, but its object is not clear to me and I should like to be told more about it.
4.30 p.m.
The object of Clause 19 is to enable a company or a taxpayer who has income which is blocked overseas to avoid having to pay during the year in which that income accrues tax in respect of that overseas income in this country. If the scheme in the Bill is one that can be worked, we can perfectly well see the object of it. Speaking for myself, I would advise my hon. Friends not to divide against it or to oppose the purpose of this Clause; but, it being the purpose to do what I have just said, why is it not enough to provide, as paragraph (a) provides, that the prerequisite for the relief should be that the foreign Government, either by its legislative or executive action, should prevent the foreign income from being brought to this country?
As I have said, there is no doubt a good reason for paragraph (b), but I cannot for the moment see the object of providing, in addition to what I have just said, that there should be no generally recognised market for overseas currency in this country. It occurred to me, in reading the paragraph, that possibly the object was that it was thought that the company should not escape liability for tax during the year in which the income arose if in some way the company could have disposed on the English market of its right, or hope, ultimately to receive

that income. I should not have thought that was in the Government's mind, because obviously such right would have to be disposed of at less than the actual amount that would have been received if the sum had remained abroad.
I simply ask the Minister not only to deal with the points made by the hon. Member for Altrincham and Sale when moving the Amendment, but also to explain the general object of this paragraph in the framework of this Clause. I am not saying that there is any objection, but I should be grateful if the Minister would indicate what the Government have in mind in imposing this second prerequisite before the relief can be obtained.

The Economic Secretary to the Treasury (Mr. R. Maudling): As my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) and the right hon. and learned Member for Neepsend (Sir F. Soskice) know, this is a matter which has been discussed in a number of previous discussions on Finance Bills, and the argument has been put forward, which is now recognised in this Bill—as it has been for some time in practice—that it is wrong to charge people current tax on overseas earnings which they cannot remit to this country.
As the right hon. and learned Gentleman is aware from previous discussions, this is a matter in which the Government and the Treasury have always been careful not to leave any loophole for avoidance and to make sure that any person claiming relief under the provision cannot remit the profit which he has earned abroad. The idea underlying this subsection is that there are certain currencies which are blocked abroad, but which can perfectly legitimately be sold on a perfectly legal market, and there are regular quotations published for those blocked currencies. Therefore, the argument is that in those cases the profits are not entirely unremittable because they can be remitted through this legitimate market.
But I must say that I think the arguments underlying this Amendment are very strong arguments. I am not at all happy about the provision as it stands, and I would agree to reconsider it between now and the Report stage. I should like to make certain that in cases where a company or an individual has remitted


profits to this country through the operation of the free market, tax will be paid on them. Subject to making sure on that point and that there are no other unforeseen circumstances, I support the view underlying this Amendment, and I should be grateful if my hon. Friend would withdraw the Amendment on the understanding that between now and the Report stage we will consider the point of view he has put forward.

Mr. J. Grimond: I assume that it is not the Government's intention that a company should be forced to sell rights to currency which it may have earned, apart from this remitted income?

Mr. Maudling: Yes, that is one of the objects which underly the submissions put forward, and one which weighs with the Government.

Mr. Stevens: Before my hon. Friend withdraws his Amendment, as I am sure he will do in view of the satisfactory assurance given by the Economic Secretary, may I draw the Economic Secretary's attention to the first few words of subsection (1, a) which state:
he is prevented from transferring the amount of the overseas income,
not "he is prohibited from transferring." Therefore, I should have thought that reference to a legal market was irrelevant. If one is prevented, it means that one cannot get it in either through a legal or any other method.

Mr. Erroll: In view of the assurance given by my hon. Friend the Economic Secretary, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Chairman: The next five Amendments standing in the name of the right hon. and learned Gentleman appear to me to go together, and they might, therefore, if it is the wish of the Committee, be discussed together.

Sir F. Soskice: I beg to move, in page 19, line 6, after "income," to insert "or any amount thereof."
Though this Amendment and the next four Amendments in lines 6, 11 and 17, immediately following on the Order Paper do not altogether deal with the same points, I think that they could conveniently be discussed together, and

therefore I will make the case for them all in one speech.
This Amendment is purely drafting in the sense that subsection (2) would seem to relate to the income as a whole. I simply want to include words which would provide for the case where some of the income of the company or of the individual taxpayer can be remitted, but some cannot. That does not, I think, raise any acute point of controversy, and no doubt the Minister will give consideration to it.
The second point is a bigger question of principle. Unremittable income is defined in subsection (1) as income which the taxpayer
is prevented from transferring … either by the laws of that territory or an executive action of its Government or by the impossibility of obtaining foreign currency in that territory.
What the second Amendment in page 19, line 6, seeks to do is to introduce a safeguard which, according to my reading of the Clause, would seem to be necessary. My recollection of our previous debates on this sort of topic is that it has been pointed out that it is administratively far from easy to make sure that money which is said by the taxpayer to be unremittable really is in the true sense money which cannot be brought to this country.
As the Clause reads at present, the Commissioners of Inland Revenue have to be satisfied that the income is unremittable in the sense I have just indicated. For example, it would be sufficient to satisfy them that by some executive action of the foreign Government or on the part of some quite minor official of the Government overseas the money had been blocked. It seems to me, if the public revenue is to be adequately safeguarded, that it is necessary that the taxpayer should not simply be able to point to some ipse dixit of a minor official in some overseas department, but should have to establish to the satisfaction of the Commissioners of Inland Revenue that he really had made reasonable endeavours to get the money back.
I do not want to be unduly harsh, but it seems to me, as a practical situation, that we may get a taxpayer here with agents overseas, whether the taxpayer is a limited company or a private individual, and there is a great deal of elbow room between real difficulty in getting


money back here and, I will not say a pretended difficulty, but a formal or technical difficulty in the way of the money being remitted.
No doubt, if one just submits an application to the overseas department and does not press the application, one may find oneself met with a refusal, but if, in point of fact, one presses it and argues the case, it may be perfectly possible to get the official in the department of the Treasury of the overseas country to see that there is justice in the requirement of the taxpayer to get the money back to this country, and he may be persuaded to let the money come back.
That is one type of case, but the Committee may easily envisage that in a whole variety of cases it might lead to very unsatisfactory results if all that the taxpayer has to do is to point to some formal prohibition or interdict on the part of some official in the overseas Finance Department. I would put upon him the requirement that, in order to obtain this relief, he should be able to satisfy the Commissioners, as I said, not merely of some formal interdict of that sort but that he really has made reasonable endeavours to overcome the obstacles to the money being brought back to this country. I do not mean every endeavour; I do not want him to have to undertake the most strenuous and exacting endeavours to do it, but reasonable endeavours. That is what I seek to achieve by the second Amendment of the five which I am discussing.
The third Amendment is a drafting one which is dependent upon the first of the five Amendments. I do not think it raises any issue of principle. The fourth is dependent and consequential upon the second of the five Amendments.
The last of the five Amendments raises a completely different point. Subsection (2) provides that the money overseas should not be subject to tax here so long as the Commissioners of Inland Revenue are satisfied that it is unremittable in the sense in which that term is defined, but that when the Commissioners of Inland Revenue cease to be so satisfied then the income overseas becomes subject to tax in this country. What occurred to me in putting down this Amendment was that there might be a taxpayer affected by

this provision in each year of, say, 10 years, and for nine of those 10 years the Commissioners of Inland Revenue would be satisfied that it was impossible for him to remit his income but that when the tenth year came, and there might have been a considerable accumulation of income overseas, the situation might arise that the Commissioners were no longer so satisfied.
There might perhaps have been some change in the relationship between this country and the overseas country in question and the Commissioners might say to the taxpayer—this would only apply to a private taxpayer liable to Surtax— "Now you can get this income from overseas." Without some such Amendment as I have put down—the last of the five which I am discussing—it might happen as a result of circumstances such as I have envisaged that in the tenth year all the income accumulated during the previous nine years might become subject to tax in the one year; and, therefore, a person subject to Surtax might find himself subject to a very high rate of Surtax which would take a very large proportion of that accumulated income from him.
That is a position which does not seem to be dealt with in the Clause unless I have misread it. It would seem to be scarcely fair, if the Commissioners take the view for nine years that the income is unremittable, but take a different view in the tenth year, that the whole income should be subject to tax in that year.
I seek by the Amendment to give the person chargeable, the taxpayer, the right by written notice to opt, in a case like that, that the income in the tenth year, in the case I have imagined, should be taxed as if it had accrued year by year. In other words, he should pay no more tax than he would have paid had the income accrued evenly year by year over the nine previous years. That would prevent a very high Surtax rate applying to the whole of the 10 years' income in the tenth year. That is the object of the fifth Amendment, which deals with that topic.
If I have not misread the Clause, that situation is not provided for, and I hope that the Minister who replies will be able to tell us that he is prepared to look at that point to see whether something should not be done by way of alteration of the draft which is now before the Committee.

4.45 p.m.

Mr. Maudling: This group of Amendments appeared on the Order Paper only this morning and I have not been able to give to them quite the full attention which I normally like to give to Amendments in the name of the right hon. and learned Member for Neepsend (Sir F. Soskice). I should like to give him my preliminary reactions to the various important points which he has raised.
The first point, that of the first Amendment, is certainly the same as our intention, but I am advised that the Amendment is not necessary and that the Clause as it stands covers the point. I will, however, look at it more thoroughly in view of the point put by the right hon. and learned Gentleman, but our intention is undoubtedly the same.
The right hon. and learned Gentleman's next point was that any person claiming the benefits of this provision should show conclusively that he has been prevented from transferring the income concerned. That is a point on which we would all agree, and which I remember the right hon. and learned Gentleman arguing with some cogency, when speaking from this Bench on previous Finance Bills. It is certainly important, and we entirely agree that it must be shown that the taxpayer concerned is really prevented from remitting the money in question.
My preliminary reaction is that the Amendment suggested would not add to the strength of the Clause, which at the moment puts on the taxpayer the obligation of showing quite conclusively that he is so prevented. The advice that I have at the moment—as I say, provisional advice—is that we think that by adding the words which the right hon. and learned Gentleman suggests we should, if anything, weaken the protection of the Revenue rather than strengthen it. But again I say we will look at the right hon. and learned Gentleman's suggestion because I think that our object is exactly the same.
The third point is slightly more difficult. As I understand the right hon. and learned Gentleman, it is that he thinks it is wrong that if income has been accruing but unremittable over a period of years, and then becomes remittable, it should be treated as income in the year in which it becomes remittable, and that

it should be spread over the years in which it was earned. There is a great deal of force in that point, and I should like to look at it between now and the Report stage, but my impression is that the point is already covered. As I say, however, I will look at it; it is an important point.
The difficulty about the right hon. and learned Gentleman's Amendment is that it uses the phrase
shall not exceed the aggregate of the amounts in which the person chargeable would have been assessed in respect of such income had this section not applied to it.
The difficulty in practice is how we can assess effectively how much to charge a person in respect of income which is wholly unremittable. It is often argued by taxpayers, and this is one of the reasons for the practice which this Clause sanctifies, that they must be assessed at nil, because the value of the money wholly unremittable is nil. There is a great deal of substance in the three points which the right hon. and learned Gentleman has advanced.
I do not think there is any difference in principle between us in any of these matters, and I would ask him to withdraw the Amendment he has moved and not to move the others on the understanding that between now and the Report stage the points which he has made will be examined.

Sir F. Soskice: I am obliged to the Economic Secretary for what he has said, and I will certainly, in a moment, ask leave to withdraw the Amendment. As to what he has just said about the last Amendment, I do not think that any practical difficulty can arise. If in one year out of the 10 income to the extent of £100 arises overseas that income technically, and apart from, as I understand it, the administrative concession, and it is only administrative, is taxable in respect of the full amount.

Mr. Maudling: The right hon. and learned Gentleman says "income to the extent of £100" but the income will be expressed in terms of, say, pesos. The argument is, how many pounds are represented by the pesos; that is the difficulty.

Sir F. Soskice: As the Economic Secretary says he is going to consider the point I will not argue it further now, but


I do not agree with what he has just said. I should have thought it would be perfectly easy, but as he says he will consider the point, that will suffice for the time being. I thank him, and beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed "That the Clause stand part of the Bill."

Captain J. A. L. Duncan: I wish to say a few words about this Clause. This is my first intervention on the Finance Bill. I have had experience of this matter, not only myself but through complaints from my constituents, and I wish to welcome the Clause as an attempt to deal with what has for a long time been a genuine grievance for men who have capital in overseas territories the income on which is unremittable.
What I want to make quite certain from my hon. Friend the Economic Secretary is how the Clause will be interpreted. In answer to the last series of Amendments, he said that money must, in practice, be prevented from being remitted. Subsection (1, b) speaks of currency which
has no generally recognised market value in the United Kingdom
and in subsection (2) the taxpayer has to show
to the satisfaction of the Commissioners of Inland Revenue
that he cannot get his money over.
What has happened in the past is that when the taxpayer has tried to show that the income has been unremittable, the Inland Revenue have pointed to one quotation on the market for one day in the year of assessment and said that therefore the income was remittable for tax purposes during the year. How they can obtain a quotation in the market, I do not know. The Foreign Office, however, have had arrangements to pay the salaries and wages of Foreign Office employees in those countries in the currency of the country in question. The firm or individual has, in return, been paid sterling in London. For that reason they have opened the door in some way for the quotation of a rate of exchange for an isolated transaction of that kind.
There may be also isolated transactions arranged through the Treasury for

specific market deals which may be in the national interest, and it may well be that for those single isolated transactions, taking place once in a year, the market eventually gets a quotation on the ground that there was a market quotation that year. In that case, the Commissioners of Inland Revenue say that the money was remittable. From the point of view of the taxpayer, however, it is quite impossible to remit, and in the case of the Argentine dividends have been paid two years late. Nevertheless, in the current case of a constituent of mine, the Inland Revenue are still charging Income Tax and Surtax on Argentine pesos which are still unremittable and where the income in the Argentine is two years late.
I hope, therefore, that the strict references in the Clause and the remarks of my hon. Friend the Economic Secretary will be much more sympathetically administered by the Inland Revenue in the future than they have been in the past, and that as a result of the Clause, which is designed to make a real contribution to a real difficulty in the case of many people who may have either small or large sums in the Argentine— railway pensioners, for example—people may more easily be able to avoid having to pay tax on money which, in practice, it is impossible for them to receive. I hope that the Commissioners of Inland Revenue will not rely on a single market quotation in a single year and then refuse the relief to which a taxpayer is entitled.

Mr. Ian Horobin: I wish to add a word in support of the point which has been made. The question of remittability must really be a question of fact. I do not think that there is any difference between the two sides of the Committee that where somebody who earns an income abroad can get it home he should pay the proper tax upon it. The question is purely a matter of fact.
People who do not deal in foreign exchange do not always realise the incredible tangle that may arise. There are something like between 50 or 60 different kinds of sterling, and we think that sterling is a fairly good currency. Some of the currencies in South America, for instance, vary not only from day to day, but from commodity to commodity. It is quite useless to say that at a certain


date there was a certain type of transaction and exchange rate.
What I impress upon the Economic Secretary—I think he has said that he would meet us in this matter—is that it is the first part of the Clause that matters. If transferability is prevented, the taxpayer should have the benefit. It is purely a matter of fact, and no administrative question of what exchange was quoted on a particular day for a certain kind of transaction has any relevance. All that the taxpayer should prove is that the pesos. for example, in question could not be brought back to this country. An individual who can prove that should have the benefit of the Clause. My bon. Friend, I believe, has said that that is his intention, but I strongly impress upon him in support of what has been said, and what, I believe, is supported on the benches opposite, is that that is the only burden of proof which should be put upon the taxpayer. If he cannot prove that, he must pay the tax. If he can prove it, he should have the benefit of it, and that is all he should be required to do.

Mr. G. R. Mitchison: Finance Bills seem to have numbers of Clauses stopping up loopholes or meeting hardships. In this Bill there are a great many of them to meet hardships. This is one upon which we are all agreed in principle, and I agree with what the hon. Member for Oldham, East (Mr. Horobin) has said. There is, however, one thing that I want to point out to him.
What has to happen in this case is that remittance has to be prevented, or may be prevented, by an executive action of a foreign Government. The kind of case that may arise is that some permission or other is necessary, and often is necessary, for the remittance in question. In a case like that it is, no doubt, a question of fact, but the fact which must be established is that one really is prevented; and in order to establish that, one must show that he really tried.
I have always understood that some foreign Governments, and, perhaps, some in this country, positively liked being asked again and again before giving their consent. That is the kind of thing that one has in mind. The hon. Member for Oldham, East will find that his hon.

Friend from Scotland, the hon. Member for Dumfries (Mr. N. Macpherson) who is sitting beside him, remembers all about Bruce and the spider and the honest little proverb:
If at first you don't succeed.
Try, try, try again.
That ought to go into the Clause.

Mr. Maudling: These important points are largely covered by the remarks I have already made. The Clause deals really with currencies that are blocked, and the first matter when a currency is blocked is to see that tax should not be collected on it. Blocked currencies, of course, can often be disposed of on other markets. That is the point that arises under subsection (I, b) and affects, I think, what my hon. Friend the Member for Oldham, East (Mr. Horobin) has in mind. As I said earlier, my right hon. Friend will consider this point very carefully before the Report stage.

Mr. Niall Macpherson: In that case, would the rate of exchange for taxation purposes be the same rate of exchange at which it is possible to dispose of the blocked currencies? Otherwise, there might easily be a serious injustice. In my experience, it has not been normally the custom to calculate the profit for the purposes of British Income Tax at the current rate of exchange. It was quite possible, by dealing in the compensation markets, to get exchange at, possibly, a 50 per cent. discount. This would mean that there was no point in remitting the money back to this country because it would all go for the payment of taxation to the Treasury. That would not be reasonable, and I hope my hon. Friend the Economic Secretary can give the assurance that where it is possible to remit the money, the rate of exchange for taxation purposes shall be the rate of exchange at which the money is remitted.

5.0 p.m.

Mr. Maudling: That is certainly a valid point. If the subsection were to remain in the Bill the assessment on the taxpayer would be on the sterling received and not on the foreign exchange at the official rate at which sterling is received.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 20.—(RELIEF FOR COPYRIGHT ROYALTIES, ETC.)

Mr. E. Fletcher: I beg to move, in page 20, line 25, to leave out from "payment," to the end of line 28.
We have had several debates in recent years, when considering Finance Bills, on the subject of relief of authors and others who derive their income from payments which accrue unevenly at occasional periods, unlike most members of the community whose income is derived fairly evenly over the years. It was first recognised about nine years ago by Lord Waverley, when he was Chancellor of the Exchequer, that there was a case for giving preferential treatment to authors in respect of lump sum payments made to them for copyright, because otherwise a person who spent perhaps two or three years writing a book and then received a large sum of money for it would have to pay tax on that sum in respect of his income for one year, which was unfair and unreasonable. The principle was conceded that he should be entitled to spread it over a period of two years and, in some cases, three years.
When the present Chancellor of the Exchequer sat on these benches and the Labour Government were in office, he sought to extend the relief to authors by making it applicable not only to lump sum payments, but also to other payments in the nature of royalties. The matter was carried a stage further last year when my hon. Friend the Member for Aston (Mr. Wyatt) moved an Amendment designed to carry out that intention. We on these benches are particularly glad to find that this year the Chancellor has succeeded in devising a form of words to give effect to what was generally felt on both sides of the Committee to be a very desirable change in the law.
My object in moving this Amendment is chiefly to inquire of the Chancellor why it is necessary to limit the relief for copyright royalties by including the last four lines of the Clause. As I read them, the result—if those words are retained—will be to exclude from the benefits of this relief payments which authors receive two years or more after the first publication of the work in question. As far as I have been able to trace, nothing was said in our debates last year, or on any previous occasion, which seems to justify such a

limitation of the relief. On the contrary, all the arguments used by my hon. Friend the Member for Aston and by my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice), who supported him, go to justify the principle that all payments of this kind should be entitled to the same relief.
If I may give the Chancellor an illustration of the kind of hardship I foresee will arise unless this Amendment is conceded, it will indicate the point I am trying to put. It by no means always follows that an author derives the maximum benefit by way of royalties from a work in the first year or first two years after its publication. There is very often what might be called delayed action in the public appreciation of a work, whether it be a work of art, a scientific work, or a best seller. It applies perhaps even more in the case of books which are published both here and elsewhere—for example, in the United States of America. It might well happen that a book is published here and not published in America until after an interval of two years or more and it might be that when it is published abroad the income derived from the overseas publication and circulation is very substantial.
It is not clear to me why there is any argument in equity which makes it necessary for the Chancellor to limit the relief to payments received to two years after first publication. I would have hoped that the Chancellor—who we know is sympathetic to the special case of authors —if he is not prepared to accept the Amendment now, would give us an assurance that he will look at this matter with a view to seeing if he is prepared to extend the benefit of this Clause in the way I have suggested.

Mr. Mitchison: I should like to add one or two words of support to my hon. Friend the Member for Islington, East (Mr. E. Fletcher). I happened to be able to give an instance which was rather near home of the difference that the inclusion or omission of these words would have made.
Take the case, which has been adumbrated, of a book published in this country, which does quite well in this country, and is then taken up by some enterprising publishers in the United States and becomes a book of the month or something of that sort there. The


results from the point of view of the country are that it becomes an invisible dollar export of some appreciable value but, from the point of view of the author or authoress, the amount of benefit is one he or she wants to be protected by this Clause. So far as I can see, the moral and—if I may use a rather painful word—cultural claim in that kind of case is just as strong as it is in the case of a book that succeeds immediately and has wide flares of publicity and circulation which always seem to come to detective stories and other literature of a particular popular kind.
I am quite certain that the Committee on previous occasions had a general feeling that authors and other artists—using the word in its broadest sense—tend to be rather badly hit by our taxation system. It would be a long story to go into it, but I believe they have always had the general sympathy of hon. Members on both sides of the Committee. I believe also that they have always had the personal sympathy of the Chancellor so far as he could give it consistent with his public office and duties. I hope that when he is looking at this Amendment he will consider it in that sympathetic light.

The Chancellor of the Exchequer (Mr. R. A. Butler): I am obliged to the hon. Member for Islington, East (Mr. E. Fletcher) for referring to my interest in this matter both from that side of the Committee and from this. I was unable to do anything about this last year, but on this occasion I was able to extend the relief given under Section 471 of the Income Tax Act, 1952. As the Committee will remember, the provisions of Section 471 of the Act allow spreading. An author who has spent more than a year on a work and who sells an interest in the copyright for a lump sum may claim that the lump sum be spread for tax purposes.
In this case I was able to extend that concession with a view to applying it to the royalties on a work. But it was only the extension of a concession which already related to authors which enabled me to include authors in my Budget statement. I should have liked to do more, but as the Committee will readily observe. there are other professional and even creative types who would like to have been included in this concession.

It was only because I found there was already a concession for authors that I was able to arrange that authors should have this further concession—which, incidentally, they and many others richly deserve—in this year's Budget.
Under the circumstances, I therefore applied the terms of the concession which dealt with a lump sum to the position of royalties and adapted the device in Section 471 of the Act. Under those circumstances I would rather not go further because I have already managed to find a small concession for authors. If the Committee will be patient for a moment I will explain how, if we did go further. it might not redound to the complete satisfaction of the authors.
The second reason is that all these matters are under consideration by the Royal Commission and there was a strong case before I made a concession for authors this year for telling them that they must await, with some others not dissimilarly placed, the findings of the Royal Commission. I decided if I could to extend the provision of Section 471 to authors, but I felt that if I went any further I should get into a wider sphere. I think the best thing hon. Members can do is to accept the concession so far as it goes for authors this year and not press me any further with regard to authors as such. I devoutly hope the Royal Commission will report before next year and then we can see what we can do in this direction. I do not give any undertaking, but we will see what we can do in the light of the findings of the Royal Commission.
The Committee will remember that under the provisions of Section 471 the spread goes back and forth, and if we accepted this Amendment it would in some circumstances operate to the disadvantage rather than to the advantage of the taxpayer. Any claim to spread relief in respect of the copyright of any work would have to apply to royalties receivable after as well as before the end of the two-year period. This spread back to royalties receivable after the two-year period might in some cases have the effect of increasing the total tax liability with the result that the relief obtainable by the spread of the first two year's reliefs under the Clause as it stands would be reduced.
With that further consideration in mind, much as my heart is with the point of view already expressed by hon. Members, I think it would be advisable to accept the concession in so far as it has gone; to feel thankful that this year we have been able to go so far, and meanwhile to await the report of the Royal Commission.

5.15 p.m.

Mr. John Strachey: I must disclose an interest as this year's acting chairman of the management committee of the Authors' Society. We naturally have discussed this matter a great deal. I should say to my hon. Friend the Member for Islington, East (Mr. E. Fletcher) that, much as we are in sympathy with this Amendment, I think the Chancellor is probably right in saying that this year we should be content with the concession he has made. It is described as a small concession, but it is a useful one, as it extends a concession made to authors some time ago, but which was so very narrowly drawn that it was of little benefit to them. The extension of that concession will mean, at any rate in one particular set of cases, that authors will receive an appreciable benefit. I am sorry to say that I think the Chancellor has made out his case for leaving the matter as it is for this year. I think the Committee should thank him for the concession he has already made

Mr. E. Fletcher: In view of the Chancellor's statement, which I am sure we appreciate, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Grimond: The Chancellor of the Exchequer has been a champion of authors and indeed has continued his championship from one side of the Committee to the other, unlike some people in like circumstances who have not been so keen to continue the fight when their position has changed. I think there is great force in what he said on the subject.
There are certain concessions to authors under the Income Tax Act of 1952 and it is convenient to extend them within the framework of that Act. There are many other people in some ways analogous to authors who may have a very

short life and who may produce one work of art or a series of performances which extend over a short period and which may not be easy to repeat.
I still feel that we cannot be entirely satisfied with what has been done this year and under this particular provision of the 1952 Act. I hope the Chancellor will await the report of the Royal Commission and when it has reported will consider the position of such people whose income may be concentrated within a very narrow compass and that some provision will be made for spreading their liabilities to tax a little further. Many of these people are put in a very difficult position in their attempts to put aside anything to compensate for the lean years.

Mr. Woodrow Wyatt: I should like to thank the Chancellor for being able this year to persuade himself that he was right when he was out of office and incorrect last year when he was in office and rejected an Amendment which would have done exactly this last year. At one period, he and I almost took turns in putting down this Amendment, but it was only because of the immense skill of my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) that we were actually able to have a debate in the Committee last year for the first time. It was possible then to debate it only because of the ingenuity of my right hon. and learned Friend in drafting the requisite Amendment.
It should be pointed out that this is not only a matter which affects authors, although the Society of Authors have taken the leading part, I think, in gaining this concession. It also affects artists, composers, playrights and any person who produces a work of art which may earn royalties. We are all very pleased that the Chancellor has been able to do as much as he has done this year and we thank him for that.

Mr. R. A. Butler: The hon. Member for Aston (Mr. Wyatt) is more than kind. This applies to authors of dramatic, musical or artistic works in the same way as it applies to authors of literary works. In reply to the hon. Member for Orkney and Shetland (Mr. Grimond), I would say that there are other classes. I have mentioned them myself. I think


that they have shown great reticence in not begrudging this small extension of a concession. Subject to that, it gives one pleasure to be consistent even if one may have allowed a lapse of one year. To that extent I think that we might accept this Clause and wish the authors well on behalf of the whole Committee and not one section.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 21.—(COMPULSORY SLAUGHTER OF FARM ANIMALS (ELECTION FOR "THE HERD BASIS ").)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Thomas Williams: I should like to put a question to the right hon. Gentleman. I understand that the basis on which this Clause was settled was an approved one but there appears to be one snag. The interpretation that is being placed upon the Clause is that the definition of the herd basis applies only to cows. Of course, that would exclude heifers or followers-on which in many cases constitute quite a proportion of the whole herd.
If that is the case—and that is the interpretation—I am afraid those unfortunate farmers who have to lose by slaughter their dairy herds will be substantial losers. I am sure that the right hon. Gentleman will correct me if I am wrong. Compensation for the total of the animals slaughtered will be somewhere in the region of perhaps £2 million. If the heifers and followers-on were included they could not be more than approximately 25 per cent. of the original figure.
I should have thought that it would have been well worth while for the Chancellor to have gone all the way and to have taken the whole of the heifers and followers-on within the interpretation of this Clause. The Clause is fully approved with the exception of this point. I hope, therefore, that we shall be told that my interpretation is wrong or that, if I am right, the Government will look at the matter again and see whether or not it would be as well to include heifers and followers-on as well as the cows so long as heifers and followers-on have to be slaughtered because of foot-and-mouth disease.

Mr. N. Macpherson: Although it has not been possible to call my Amendments to this Clause, I should not like to part with the provision without making some comment about it. First, I should like to express my thanks to the Chancellor for the sympathetic attention that he has given to the whole question of those who have suffered losses through foot-and-mouth disease. Only a year or so ago there was a severe outbreak of foot-and-mouth disease which affected my constituency seriously. The right hon. Gentleman has listened with great sympathy to the representations that have been made and, what is more, he has taken action at the earliest possible moment. We are all most grateful to him for that.
As I understand the position, what the Clause does is to give farmers who have not already made an election for the herd basis another chance to make an election for it. Under the 1947 Finance Act owners of production herds were given a right to go on the herd basis within one year from the end of the first year after the Act came into force in which the farmer was chargeable for tax. It follows from that that the only people who benefit from this concession are those who did not take that step at that time In other words, it is those who are not now on the herd basis who are given the option to go on it.
In passing, I would say that that option once exercised cannot be retracted. Therefore, under this Clause a farmer who loses his production herd through foot-and-mouth disease has then to choose whether or not to go permanently on to the herd basis or whether to accept the fact that he will be taxed in one year on the whole of his compensation as if he had sold off his herd as an ordinary trading transaction in one year. That, I think, is the position.
While thanking my right hon. Friend it is only fair to point out the limitations of the concession. As I understand the matter, the production herd is limited to mature animals. Immature animals— those which have not calved—and flocks must be included. I shall be surprised if they are not, because under the original Tenth Schedule it is specifically stated that a herd includes a flock. Indeed, the right hon. Gentleman, when that Schedule was discussed, had a lot to say about


acclimatised flocks. I do not think that there can be much doubt about that. Except in the case of acclimatised flocks, immature animals are excluded from the benefit of the Clause.
From the taxation point of view it is true to say that the immature animals form part of the trading stock. The farmer is free to buy and sell them within the course of the year and the profit or the loss that he makes goes into his annual trading profit and loss; whereas on the herd basis the production herd is not brought into account each year. Therefore, the capital value can appreciate without its being subject to annual taxation. That, I think, is the rough difference.
However, in the eyes of the farmer a certain proportion of that immature stock must always be part of the herd, because it is that immature stock on which he relies in order to maintain his herd. He cannot at any given moment identify certain animals and say that those will be part of the production herd but he knows that within the next two years a varying proportion—but very often something between one-third and one-half—of the immature animals will be taken into the production herd. That is the position and he regards it as part of the production herd for that purpose.
What happens in the case of slaughter? The immature animals are slaughtered as well. Suppose that slaughter takes place towards the end of an accounting year. It is plain that the farmer will not, even if he wants to, be able to replace those immature animals within that accounting year. Therefore, the whole of the compensation for the immature stock, whether it is destined to go into the herd or whether it is destined to be sold, falls subject to tax within the one year. It may well be that the farmer will find himself with a very much reduced quantity of compensation in order to replace that immature stock.
5.30 p.m.
This is the difficulty with which one is faced, and it really cannot be said, in those circumstances, that the whole of the immature stock forms part of the trading stock in circumstances like those. It simply means that for the next two or

three years there will be a heavy reduction in the amount of profit that the farmer will make, but what is worse from the point of view of the national figures is that it almost certainly means that the herd will be substantially reduced in numbers and its production output will be substantially reduced for a number of years to come.
We all know that to build up a pedigree herd takes many years and to reestablish the destroyed herd and to establish the reputation which was enjoyed by it will take many years. Over that period the farmer may decide not to buy immature stock in replacement, for many farmers prefer to breed their own. If the whole herd is slaughtered, they buy heifers in calf and build up their own pedigree herd all over again. That simply means that in the intervening two years hardly any of the immature stock will be trading stock because they will have to be taken into the herd to maintain the amount of the herd.
When the whole of the herd is slaughtered under a foot-and-mouth order, it is an indication of how inapplicable in those circumstances is the conception of immature stock as trading stock. I doubt very much whether the right hon. Gentleman the Member for Don Valley, when he was Minister of Agriculture and was associated with the Tenth Schedule of the 1947 (No. 1) Finance Act, had in mind the incidence of foot-and-mouth disease. It is something which is now being adapted. It is desirable to adapt it a little further to ensure that the herd and the production of the herd are maintained in the intervening period.
It is customary for farmers to insure against consequential loss as a result of the slaughtering of their herds. No one could argue that that consequential loss ought not to be assessable for taxation. After all, it is a loss of profit. But the purpose of the insurance is to cover farmers for loss of profit for several years and not just for the one year in which the payment falls due. This is another aspect that I ask my right hon. Friend to consider.
A number of farmers have been waiting for some time for the Bill to become law before taking any action. Farmers are canny people and will not treat something as law until it actually becomes


law. I am a little doubtful whether the period within which an election has to be made will be adequate in all circumstances this year, although in future years it will. The Clause specifies that the election has to be made not later than 12 months after the end of the first year of assessment for which the tax is chargeable. Once the Bill is on the Statute Book, in future years that will be clear, but I am doubtful whether it is adequate in the first year. I thank my right hon. Friend for the concession and I hope that at the next stage of the Bill it will be possible to go a little further.

Mr. John Mackie: I support the argument which has been placed before the Committee by my hon. Friend the Member for Dumfries (Mr. N. Macpherson). My constituency, which adjoins his, suffered not so heavily as his did but still very considerably in the unfortunate cattle plague which struck southern Scotland in the summer months last year. I well know from personal experience what it meant to many dairy producers in that area which is so largely devoted to dairy production. My constituency is even more suitable for dairy production than is that of my hon. Friend, which is saying something pretty daring. With his very technical arguments, my hon. Friend has gone deeply into the matter and I do not propose to follow him. He must have devoted a considerable amount of time to the preparation of the speech and must have had a considerable amount of skilled assistance in preparing it.
I know the very great difficulty which has been experienced and is still being experienced by dairy producers who have been compelled to slaughter the whole of their herds. I have in mind in particular the case of a famous herd in my hon. Friend's constituency, with the building up of which considerable difficulty has been experienced. Some of these farmers are holding their hands until they know what the position will be under the Clause and under future legislation.
I also wish to support the very direct and simple point made by the right hon. Gentleman the Member for Don Valley (Mr. T. Williams). Is the assistance to be forthcoming under the Clause as it now stands to be confined simply to the cows, or is it to be applied also to the heifers—or, as we call them in Southern

Scotland, queys—and the followers-on? If, to use the words of the right hon. Gentleman, the Financial Secretary to the Treasury can assure the right hon. Gentleman that he is wrong and me that I am wrong, he will have gone a long way to clear away the doubts and fears felt by dairy producers.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter): The startling contingency of both the right hon. Gentleman the Member for Don Valley (Mr. T. Williams) and my hon. Friend the Member for Galloway (Mr. Mackie) being simultaneously wrong is so improbable that I need not spend any time upon it. The right hon. Gentleman is correct. The owner of the heifer does not, for reasons that I shall explain, come within the advantages of the Clause. All the Clause does is to take the existing herd basis rules and give to those who did not by the date previously fixed, 5th April, 1948, elect to go on to the herd basis an opportunity to do so either now or in the future. The Clause does not purport to alter— this may sound a re-duplication, but I am sure the right hon. Gentleman will understand me—the basis of the herd basis; it simply provides a new and continuing entry to it.
Thus, the rule remains as it has been since the Act of 1947. It is very clearly set out where those provisions are re-enacted in the Twentieth Schedule to the Income Tax Act, 1952, where these clear words are used:
Female animals shall be treated for the purposes of this Schedule as becoming mature when they produce their first young.
My hon. Friend the Member for Dumfries (Mr. N. Macpherson) raised substantially the same point, the exclusion from the advantages of the herd basis of young stock. That is a matter on which I know there are considerable feelings, and opinions have been expressed, notably by the Scottish N.F.U., but there are very real difficulties in the way of accepting my hon. Friend's point of view. It is only his point of view that arises here because, as I understand it, these suggestions for the extension of the herd basis have been indicated to be out of order and therefore, Mr. Hopkin Morris, I must be careful not to incur your displeasure by dealing with them even by way of illustration.
The Committee will appreciate that if that is so, the most which it is possible


for my right hon. Friend and myself to do is to listen, as we always do with interest, to the arguments which are put forward. One always listens with particular interest to the right hon. Member for Don Valley when he speaks on topics agricultural. I certainly would not dream of joining issue with him on any such topic.
Returning to my hon. Friend's point, this issue has been very much discussed and there are really two considerations which arise. In the first place, almost by definition, young stock is not part of a production herd. It is not part of the capital of a business. It may in course of time become so, but it is not so while it remains young stock. That view has been upheld by the Tucker Committee. The Scottish N.F.U. were good enough to put this point of view to the Tucker Committee. I do not want to weary the Committee by reading the opinion of the Tucker Committee, but paragraph 288 is very clear on the matter and expresses in far more authoritative terms than I could what I myself tried to express a moment ago on this point.
The other point that my hon. Friend raised I can deal with very rapidly. He referred to the topic of his own last Amendment, the possibility of spreading compensation payments. I think I need only invite his attention to what my right hon. Friend said on the previous Amendment. I think my hon. Friend will recall that my right hon. Friend indicated that that is essentially part and parcel of the wider problems which the Royal Commission is at present discussing, and for those reasons it is not perhaps particularly fruitful to pursue them too far now.
On his other point of the length of notice and the margin of time for making the necessary election under this Clause, my hon. Friend may recall that on the Second Reading I said:
Under subsection (2) of the Clause this"—
that is, the election—
can be done at any time up to 12 months after the end of the financial year in which the compensation payment in question is made."—[OFFICIAL REPORT, 7th May, 1953; Vol. 515, c. 585.]
I think that allows a reasonable time for any farmer who has had the misfortune to suffer the loss of his stock in this way

to consider whether or not the herd basis would be of advantage to him. Naturally the last thing my right hon. Friend would wish to do would be to deprive anybody of the benefits of this Clause through inadequacy of time in which to make up his mind, but I feel that the period to which I have referred is adequate for that purpose and is a great deal longer than is often provided for the making of similar decisions.
I was glad to note that the Clause as such has been welcomed on both sides of the Committee. As I said on Second Reading, it will be of substantial advantage to those considerable sections of the farming community who suffer from outbreaks of foot and mouth disease. As hon. Gentlemen will have noticed, provision is made so that election can be exercised in the interests of those who suffered in the severe epidemic of 1951–52, and it is always gratifying to find that a Clause is not only supported in this way but is subject only to the criticism that hon. Members would like it to go even further. That is certainly an encouragement to my right hon. Friend.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 22.—(CHARGE OF TAX ON SUMS APPLIED OUTSIDE U.K. IN REPAYING CERTAIN LOANS.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

5.45 p.m.

Mr. E. Fletcher: I gather, Mr. Hopkin Morris, that you will not be selecting the Amendment which appears under my name in page 23, line 30, to leave out "1953–54," and add "1952–53," and on that assumption I gather that it will be open to me to deal with the point now.
It will be appreciated that the object of this Clause is to check what has become an almost notorious and glaring possibility of tax avoidance. I am glad to have the opportunity of congratulating the Chancellor on having introduced this Clause into the Bill in order to put an end to the scandal which was exposed in a recent judicial decision in another place in the case of the Commissioners of Inland Revenue v. Gordon when the House of Lords affirmed an earlier decision of the Court of Appeal in the case of Hall  v. Marians.
The kind of device to which people have resorted in order to avoid payment of Income Tax is this. A taxpayer may be in receipt of income abroad. In the case of Hall v. Marians it was receipt of income from Ceylon; the income in that case was paid into a banking account in Ceylon, and after a short interval the taxpayer used that income in order to purchase some India Bonds which were held by his bank in Ceylon. He then proceeded to incur an overdraft at the London office of the same bank.
Not wishing to pay off his overdraft at his London bank out of his United Kingdom income, he instructed the Ceylon branch of his bank to sell the India Bonds and apply the proceeds in discharging the overdraft. This, of course, was done by entries in the books at the bank, and the result was that the taxpayer had used his income arising overseas in order to discharge an overdraft which he had incurred at the London branch of the bank.
The House of Lords held that that transaction did not amount to a remittance by the taxpayer of the owed income to this country, and, therefore, was not taxable. As soon as that decision had been affirmed in the House of Lords it became obvious that any taxpayer who was so minded and who enjoyed income arising abroad could leave it there and would incur no liability to pay any Income Tax on it, and at the same time would in effect get the full benefit of 'bringing it to this country, by going through the simple operation of going to his London bank, borrowing money which was spendable as capital and then instructing the overseas branch of the same bank to pay off the overdraft incurred in London.
That device is one to which no reputable taxpayer would resort. Nevertheless, I think we should all agree that it is very desirable that by this Clause the Government should effectively take steps to put an end to this particular loophole in the Income Tax provisions.
My only criticism of the Clause as it stands is that it does not, to my mind, go quite far enough, and that is why I put down the Amendment which was designed to change "1953–54," in the last line, to the current year 1952–53.
As the Clause stands, it will still be open to a taxpayer to use the machinery

of this case for the current year, to use income arising abroad during the current financial year, for the purpose of repaying a debt incurred by him to his London bank prior to 15th April of this year. I might have hoped that the Clause could have been still further tightened and that the loophole in our legislation, having been exposed, would be effectively closed as rapidly as possible. There is no reason why, as from 14th April, the date of the Chancellor's Budget statement, this device should not be completely checked. Why should a taxpayer be able, for the whole of the current year, to use income arising abroad for paying off a debt incurred here under this device, and thereby avoid liability to United Kingdom Income Tax upon it?
I imagine that the only possible justification that will be given by the Solicitor-General for not making the Clause operrate retrospectively is the repugnance that we all feel to anything in the nature of retrospective legislation. It is carrying that repugnance to unnecessary lengths to allow this device to operate for the full period of the current year of assessment. Taxpayers who are minded to resort to this method of avoiding tax would be justified in assuming that something would be said about it in the Chancellor's Budget statement, as it was. I should not have thought that hardship would have been suffered if, from 15th April this year, the loophole had been effectively closed. As, however, my Amendment has not been called, I hope that the Solicitor-General will look at this matter before the Report stage to see whether the Government themselves are prepared to tighten up the Clause in the way I have suggested.

The Solicitor-General: I hope to be able to satisfy the hon. Member for Islington, East (Mr. E. Fletcher) that there is no need to tighten up the Clause in the way he has suggested. In the course of his comments on the Clause he has referred to the case of Hall v. Marians. The decision in that case revealed a loophole, but not of a very large extent, because only a limited class of people could conceivably make use of it, and it does not appear from the reports that there was any tax avoidance motive in using it. Apparently, partly because of the war and partly because of the complexity and difficulty of dealing with these loopholes,


this one has not been dealt with until now. The reason for dealing with it now is the recent decision in the House of Lords which has drawn attention to it.
I am glad that the hon. Gentleman welcomes our endeavour to stop up this loophole. I think it is satisfactorily stopped by the proposals in the Clause. The hon. Gentleman will appreciate that the manner in which we are seeking to prevent this avoidance in the future is by treating money used in repayment of the loan as an amount liable to tax. Applying that method, it becomes important to try to determine the line marking where this Clause is to operate and what transactions should be left out. We have borne in mind that this loophole has existed for a great many years. One might almost say that its existence has been acquiesced in up to now. There may be people who think they were perfectly entitled, nothing having been done about it, to follow the methods revealed by that case. Many people who have been taking advantage of that loophole may be of small means.
It seemed right to us, having regard to the history of this case, to seek to avoid any element of retrospection, and we have therefore drawn subsection (5), to which the hon. Gentleman has called attention. We did not feel that it was right suddenly, after this lapse of time, to say that one would have to pay tax now upon an amount used to repay a loan, made long before the Budget, when one may not have made any provision for that tax. What we have done is to secure that those who borrowed the money before Budget day will have a year in which to pay it back, without the sum which is used for payment back being liable to Income Tax. That is a sound proposal and a right one, which avoids a retrospective effect.
It might be argued that we ought to exempt from taxation any sum, whenever it is paid back, in relation to a loan made before the day of the Budget. I think it is right to provide that there should be one year in which people can repay loans which have already been obtained without incurring liability to tax which they could not have foreseen at the time they made the loans. I hope that my explanation will satisfy the hon. Gentleman.

Mr. Mitchison: While I appreciate the value of this Clause as a whole, I think there is a good deal more to be said about it than the Solicitor-General has realised. The question seems to be in regard to a series of transactions which have begun and have not yet been completed. They are transactions which, on the Solicitor-General's view of the matter, are to take advantage of a recognised loophole. I say "recognised" because, as the right hon. and learned Gentleman rightly pointed out, the law has stood in this form for some time past. We now see a good and sufficient reason, I am sure with the approval of the Committee, for stopping up that loophole.
6.0 p.m.
The point upon which I personally am not satisfied is that I should have thought no hardship would have been caused if the part of the transactions which has been already effected could be retracted, that is to say if the taxpayer in question could put himself back. I should have thought that that was possible in a case of this sort, and, if it was possible, then the allowance of a year or thereabouts to complete what is, on grounds of policy, an undesirable transaction, was a mistake. To close the loophole in a series of transactions which can have begun and which, so far as they have gone, can be put back would not be retrospective legislation, would not inflict any hardship and would, on balance, be right.
I am not asking the Committee to divide against this Clause on that ground, but I am asking the Solicitor-General to reconsider the question whether it would not be better in the circumstances to provide for cases, if they need a special provision, where the taxpayer concerned can put himself back in the position in which he would have been if he had not started on this series of arrangements. When we are dealing with comparatively short periods like this, I do not think that it is really any argument to say that provision may not have been made for taxation. I fully appreciate the force of what the Solicitor-General said about the state of the law now and some time previously. Nevertheless, in a transaction of this character one ought to give effect to the question of whether special provision had or had not been made 
The real point is whether people, by means which have been lawful and we have allowed to become unlawful, shall be allowed to avoid taxation. Whilst one does not want to turn the Treasury or the Government into instruments of oppression, it does not escape my notice, nor I am sure the notice of the Committee, that we have been granting concessions of various sorts on good and sufficient ground on a number of Clauses. This is the first loophole. Let us stop it up properly for the rabbit that is outside —if rabbits do sit outside loopholes— and also for the rabbit or other animal that has gone halfway through.

The Solicitor-General: I do not think that any alteration such as the hon. and learned Member for Northampton (Mr. Mitchison) suggests is necessary or desirable. Under the Clause the individual concerned may have borrowed the money and spent it before the announcement of the Budget. He has then the liability of repaying the loan overseas if he is one of those within the Hall v. Marians rule. Bearing in mind that the tax now is to be imposed not on the amount borrowed by the taxpayer but on the sum that he uses to repay, we feel it right that in relation to the sums borrowed by the individual before the Budget date, which presumably he has spent and which he has to repay, there should be a year to repay without incurring liability to tax. Under the Clause, if anyone within the Hall v. Marians rule borrows money he will not be able to avoid liability for tax on the repayment. I think that that is a fair compromise, and I commend it to the Committee.

Mr. Mitchison: The whole of that argument depends upon the possibility of his having spent the money. With great respect to the Solicitor-General, in all the circumstances that seems to me to be a rather poor argument.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 23.—(POSTPONEMENT OF CAPITAL ALLOWANCES TO SECURE DOUBLE TAXATION RELIEF.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Sir F. Soskice: This Clause looks innocent in character. It is another

Clause which grants a relief. I suppose that its purpose is to achieve a recommendation in paragraphs 306 and 307 of the Millard Tucker Report, but I really think that we ought to know a little more about it. It is a little hard to ask Ministers to give exact estimates of the cost of a Clause of this sort but, on the other hand, we are apparently being very generous in this Bill in the matter of double taxation relief.
I cannot discuss the next Clause beyond indicating that in very general terms it greatly extends the scope of unilateral relief in relation to double taxation. Clause 23 is designed apparently to deal with the situation envisaged in paragraph 307 of the Millard Tucker Report. That paragraph gives an example of the situation in India where initial allowances are granted, and granted apparently at a time or in a year which is different from the year in which the corresponding initial allowance would be granted in this country.
That brings about the result, which one can well imagine, that a company which pays tax in India and here may come off very badly in that it may have its tax liability reduced by its initial allowance in two different years with the result that a set-off of tax provided for in a double taxation agreement would be very small indeed. I can well see the case made in the Millard Tucker Report for granting relief in that particular example.
But paragraph 307 of the Report simply gives that as an example. The Clause, on the other hand, is a Clause which may or may not be limited to that type of example. It is very general in its terms and relates to relief under Part XIII of the Income Tax Act, 1952. I ask the Economic Secretary if he can give the Committee any idea of the scope of relief which is granted here. In other words, can he tell the Committee in what other cases this Clause will be operative? Will it be operative simply in the case of initial allowances under Indian taxation laws, or are there other countries in respect of which this relief will be operative?
No doubt those who have advised the hon. Gentleman will have taken steps to obtain a provisional estimate. Can he give an idea of the cost to the public purse of this relief? I do not want the


Minister to embark upon a long, discursive account of all the examples in which this Clause might operate, but I think that the Committee, before passing the Clause, ought in duty to ask for information roughly and broadly in outline about the scope of the relief granted here. Is it operable only in India? Are there other territories, or are there other kinds of cases than those described in paragraph 307 of the Millard Tucker Report?
Keeping within the rules of order and without moving the two Amendments to page 24, line 20, which are on the Order Paper in my name and have not been selected, I hope the Government will look again at the drafting of subsection (3). I know that those who draft these Clauses are highly skilled, but if they are listening to what I say they may agree that there is a certain amount of room for improvement in the drafting—with a view to making the Clause clearer—on the lines of the Amendment which has not been selected and to which I shall certainly make no more reference in your presence, Sir Charles, than the questions I am now asking. I simply express the hope that they will look at the Order Paper and be able to devise something on the lines of the Amendment about which I am certainly not speaking at the moment. The Minister cannot be asked to do that here and now, but I hope that he will be able to answer the question of substance.

Mr. Maudling: Perhaps I may first make some reference to the Amendments which the right hon. and learned Gentleman did not move—not by way of argument but by way of illustration of the Government's tolerant consideration of these matters. I thank the right hon. and learned Gentleman for having called our attention to these Amendments which, had they been moved. I would have said we would have considered to be an improvement and would have been glad to accept.
They are intended as a clarification of the drafting and of the intention of the Clause. The right hon. and learned Gentleman is perfectly right when he says that this Clause is intended to carry out the Millard Tucker Committee's recom-

mendation—which is contained in paragraph 308 and not paragraph 307—the point being, as he explained, that where an initial allowance is granted in one year in this country and in the next year in the other country to which a double taxation agreement applies, the taxpayer may not get the benefit to which he would normally be entitled under the protection of the double taxation agreement.
India is the example which is quoted in the Millard Tucker Report, but there are some other countries. I could not give a list of them and I do not think the right hon. and learned Gentleman asked for one. There are not many of them. This provision also applies to the ordinary annual allowances and the balancing charges allowances. Its scope is not restricted to the initial allowance, or to the country of India, though that is the example which is normally quoted. The cost cannot be accurately estimated but it is officially described as small, and from his experience the right hon. and learned Gentleman will know that that means it is a matter of hundreds of thousands of pounds rather than millions of pounds.
I hope that what I have said will meet the main points which the right hon. and learned Gentleman had in mind. This Clause intends to carry out the recommendations of the Millard Tucker Committee, but its scope is general and is not confined to initial allowances or to India. It also covers the annual allowance and the balancing charges allowance. We think this is a concession to which the taxpayer is rightly entitled and we are satisfied that the cost of meeting it would not be more than small.

Mr. Douglas Jay: Do I understand the hon. Gentleman to say that if we were to put down on the Report stage certain Amendments which have been mentioned, if those Amendments were there selected the Government would be prepared to accept them?

Mr. Maudling: That strikes me as a hypothetical question. I said that if they had been called this afternoon they would have been accepted then.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 24.—(REMOVLE OF SPECIAL LIMIT ON UNILATERAL RELIEF FOR DOUBLE TAXATION OF PROFITS OR INCOME.)

Mr. Erroll: I beg to move, in page 25, line 39, at the end, to insert:
(3) Notwithstanding that arrangements having effect by virtue of section three hundred and forty-seven of the Income Tax Act, 1952, have been made with the Government of any territory outside the United Kingdom, any taxes which take the place of a foreign income tax or profits tax and are payable under the laws of the territory concerned shall be allowed as a credit against tax payable in the United Kingdom and the provisions of the Sixteenth Schedule to the Income Tax Act, 1952, shall have effect accordingly.
The Income Tax Act, 1952, shall have effect, and this section shall be construed, as if this section were contained in Part XIII of that Act.
The Royal Commission's recommendation that full unilateral relief should be given is most welcome, and I am sure that we are all glad to see this recommendation being given effect in the two Clauses of which this is the second one. It is a relief which will help some companies to overcome the barriers to international trade which are occasioned by double taxation.
Unfortunately, the scheme of double taxation relief as now operating is useful only if other countries have developed their fiscal systems to the same technical stage of progress as those of Western European countries. In many cases overseas countries either do not accept the idea of a net income basis for taxation, or—because of the stage their economies have reached—prefer to assess taxation on a simpler or more primitive basis. This applies even to one or two European countries, notably to Portugal, where a mine is assessed on the value of the ore at the mouth of the mine and not on an Income Tax basis.
6.15 p.m.
In Spain, quite a different system operates. I should like to quote briefly from a letter I have received, because it shows how entirely different the system in Spain is from that in other countries in Western Europe. The letter says:
In Spain private persons in business pay an annual fixed sum which varies according to the size of the town where the business is carried on and to the nature of the business. The actual application of an assessed amount to each business is made by a sort of guild committee appointed for the purpose. This

guild committee in turn takes its instructions from a department of the national fiscal board who fix annually a round sum to be contributed by each class of business in each town or province.
The taxes are there, but they are not taxes on income as we understand them. I would not limit my examples solely to Spain or Portugal, because certain of our Colonial Territories—where the Colonial Government is often under the guidance of our Colonial Office—have seen fit to levy a sliding scale tax which increases with the profitability of the concern. These Governments often call such taxes royalties, but because they are called royalties it does not make them any the less like Income Tax. which is what they truly are.
These overseas taxes, whether they are called production taxes, taxes on output or on turnover, are effective income yielders in these overseas territories, and they penalise the British companies operating in competition with local firms, who pay those taxes as their contribution to the local exchequers. The British companies contribute to the local exchequers in just the same way, but their contributions are ignored for double taxation relief, and they are allowed only as a working expense. This is quite inequitable, and the Inland Revenue should recognise that these overseas levies are a drain on the taxable capacities of the overseas companies, none the less because they may be called something other than Income Tax.
It is worth looking at the practice which is followed in the United States of America, where this position is recognised in their tax law. In their scheme of double taxation reliefs they will allow for double taxation relief taxes other than Income Tax, which have broadly the same effect. It would be a great help to British companies operating in competition with American companies if they were placed tax-wise, so to speak, on the same competitive footing.
I have tried to put this matter in the form of the Amendment which I have proposed so as to afford a substantial relief to companies operating in countries where Income Tax as we know it is not the main or principal tax, so that they may get the benefit of the relief in the same way as if they were taxed on the basis of a pure Income Tax.

Mr. Mitchison: We might have considerable sympathy with the general purpose of this Clause, but I earnestly hope that the Government will not accept this Amendment. I really never knew what was meant by
any taxes which take the place of a foreign income tax or profits tax.
I am afraid that the hon. Member for Altrincham and Sale (Mr. Erroll) has made it perfectly clear that the phrase is too hopelessly vague to be put into any tax legislation.
I listened to his vivid description of Franco's poll tax. I thought at first that it might depend on the colour of one's hair, but apparently it is applicable to those hairless entities called companies, and it appears to depend more on the size of the place in which one is living. I suppose that any form of revenue takes the place of another form of revenue, unless both taxes are imposed at once. In no other sense can I see that there is any particular connection with Income Tax. It opens the most alluring possibilities. Apparently the amount paid did not depend on one's Income Tax, and as far as it did not depend on the town where one lived, it depended on what appeared to be the local equivalent of a Treasury decision. I hope we have not got as far as that yet. It would be an intolerable burden on the Treasury, and instead of providing the relief, we should provide what is now called a loophole leading to a vista at which I somewhat shudder from the public point of view. I see no particular reason for treating the tax in the way suggested.
I will not go through the other suggestions. Surely we should watch very carefully the whole position of relief against Income Tax in respect of tax paid in another country. I should have thought it should be carefully watched and very clearly defined and limited to what are fairly clear cases; indeed, I go a little further—limited to absolutely clear cases. When the hon. Member was moving the Amendment I wondered whether, if we had been able to take him on a world tour of taxation, he himself would have been able to say which taxes did and which did not fall in the description of his Amendment.

Mr. Maudling: I find myself in the rather embarrassing position of having

to disappoint my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) and of giving comfort to the hon. and learned Member for Kettering (Mr. Mitchison). For reasons which I will try to explain, we cannot accept the Amendment.
The Clause is designed to carry out one of the recommendations of the Interim Report of the Royal Commission which said that unilateral relief should be fully granted and that the existing restrictions of three-quarters for the Commonwealth and one-half elsewhere should be abolished. This we have done, and the Clause carries out faithfully the recommendation of the Royal Commission. The cost will be between £2,750,000 and £3 million annually, and we believe that it is a considerable assistance to industry and is justified.
My hon. Friend asks us to go a great deal further and to extend the whole basis of double taxation practice and theory which so far has depended upon the tax for which relief is given being a charge on income or profits and corresponding to the Income Tax or Profits Tax imposed in the United Kingdom. There are many other forms of taxation imposed overseas, and my hon. Friend referred to the example of Spain. There are various taxes or royalties in the Colonies, the Malayan export duty on rubber, the special oil duties in some Middle Eastern countries and Venezuela. There are a great variety; some are royalties, and royalties, as was decided in the case of the Ashanti Goldfields Corporation Ltd. versus Merrifield, are not the same thing as taxes. It could be argued that some of these taxes are a substitute for Income Tax or Profits Tax but others— for example, the Malayan rubber export duty—are in addition to and not in substitution for Income Tax or Profits Tax, and would not fall within the scope of the Amendment.
All these matters are being further considered by the Royal Commission. Their Interim Report was not a final conclusion on these matters, and we hope to have further advice upon them when their final Report is prepared. But I must say that even at this stage I see considerable difficulties, in particular in extending double taxation relief on the lines suggested. There is a great difference between direct and indirect taxes. Purchase Tax and indirect taxes of that kind are


allowable deductions in computing profits. In the case of direct taxation, £ for £, relief is given for every £ of tax charged by the overseas tax, so that relief from United Kingdom Income Tax is conferred. Indirect taxes are charges which are deductable in assessing profits.
There is a clear distinction which must be maintained in double taxation matters between direct taxes and indirect taxes. At present the Government do not think it possible to accept the Amendment or the ideas underlying it. This matter is still before the Royal Commission, however, and the Government, and I hope the whole Committee, will await with great interest any further remarks they may have to make on the subject.

Mr. Erroll: As the matter is still being considered by the Royal Commission, who are doubtless still prepared to receive evidence, I will not press the Amendment. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Sir F. Soskice: I must confess that I thought we should hear a little more from the Minister by way of justifying the Clause. He has told us—and it is of course the case—that this formed the subject of an interim recommendation by the Royal Commission, but it seems to me that the Minister should be prepared to deploy the reasons which justify a departure from the policy which hitherto has been pursued on the principle of double taxation relief. I am not saying necessarily that we oppose the principle of the Clause, but if we are being asked to accept it the Minister should make a case for it. With respect to him, it is not enough for him simply to point to the Interim Report and say that automatically, in effect, it must be accepted.
He said the Clause will cost the public purse a substantial sum of money— something like £2,750,000. Hitherto, we have proceeded cautiously for very definite reasons in the way of granting this double taxation relief. We started some time ago by the Clause which is now Section 347 of the Income Tax Act, 1952, which provided for reciprocal arrangements between various countries.

Efforts were made to procure the extension of the relief in the way of granting unilateral relief without the negotiation of such a reciprocal agreement. It was pointed out when these attempts were made that the disadvantage of granting unilateral relief was that it provided a not inconsiderable disincentive to other countries in negotiating reciprocal agreements. I think that in Finance Bill debates in previous years the Committee gave full weight to that point.
Finally, as the matter was still pressed, the previous Government went as far as to grant the relief which is now part of the existing law—namely, the unilateral relief to the extent of three-quarters of the tax in the case of Commonwealth countries and one-half of the tax in the case of foreign countries. Now it is proposed at one swoop to remove those limits and to grant the relief at the rate of 100 per cent. I should have thought that the argument about the negotiation of reciprocal agreements still stood. If it was good before, it is good now.
Possibly it applies to a somewhat lesser extent because considerable progress has been made in the negotiation of these agreements and many countries are already party to them, but the Minister will no doubt agree with me that it is in the general interest that, as far as possible, all countries should become parties to agreements of that sort so that the burden of granting relief does not fall only upon this country but is shared by countries which have entered into reciprocal agreements with us. I suggest that the Minister should tell the Committee something about the present state and prospects of these negotiations with countries which are at present not parties to reciprocal agreements. How are the negotiations progressing? What, broadly speaking, is the range of the countries already covered by such agreements?
6.30 p.m.
What reason have the Government for forming the view that it is no longer necessary to retain the advantage of having some incentive to other countries to enter into such agreements? I have no doubt that the Government have good reasons, and I feel sure that they must have weighty considerations in mind


which were weighed when these matters were discussed in previous debates, but I think that the Economic Secretary, instead of just asking the Committee to accept this Clause without further scrutiny, is under the duty to explain the Government's view with regard to it on the merits, leaving aside the technicalities, leaving aside all the things that could be brought within the scope of the relief, leaving aside the rather technical problems we discussed when the last Amendment was before the Committee. I think he should give the Committee the broad merits of the case to justify this Clause, justify the step the Government are now taking of charging the public purse to the tune of some £2,750,000 by abolishing the half-limit or three-quarter limit.
Speaking for myself, I would not oppose the purpose of the Clause at this stage without knowing more of the reasons for which the Clause was introduced, but I think it is scarcely fair that the Economic Secretary should come to the Committee and ask the Committee to pass the Clause without a word of explanation and without assuring the Committee that the Government have carefully pondered the recommendations that have been made, as I am sure they have done.
I think the Economic Secretary should be able to give the Committee the results of that pondering, and why the Government think this particular expenditure is worth while. Do they think that the disadvantage is no longer continuing from the point of view of the conclusion of other reciprocal agreements? Do they think that the loss is sufficiently compensated by the advantages to be gained by the removal of these limits? I have indicated to the Economic Secretary the request I would make to him, and I hope that he will see the justice of my request, and will say what are the reasons for commending this Clause to the Committee.

Mr. Maudling: I will gladly respond to the right hon. and learned Gentleman's very reasonable and proper request. This Clause does involve a very substantial sum of money. The real reason which prompted the Government to this decision was the importance of removing all

handicaps on our exporters and on our companies operating abroad in competition with those of other countries.
There have been examples, and I think the Committee may be aware of some— in Ceylon, in particular—where British companies which have to pay both local tax and the United Kingdom tax, which together may amount to an enormous sum, have had as a result to quote prices which put them out of competition with other countries, or which result in a business becoming not profitable at all. The real reason we wanted to go ahead with the complete abolition of the restrictions unilaterally was to give this further assistance to British companies operating abroad often in keen and growing competition with other countries. That was, of course, the idea, the motive, that underlay the original unilateral relief.
I was asked why we felt we could go the whole way. Up to now unilateral relief has been the subject of definite restrictions, the idea being that it was desirable in every case where possible to achieve a double taxation agreement, and that if we for our part were to grant relief unilaterally the incentive to other countries to make agreements would thereby be diminished. That has been an argument of some force, but we consider that its force has been diminished as double taxation agreements have been acquired pretty widely throughout the world.
The right hon. and learned Gentleman asked for some account of what progress has been made. There are double taxation agreements so far as Commonwealth countries are concerned in force with all Commonwealth territories except India and Pakistan, and some territories in which the taxation certificates have, perhaps, political significance but where their economic significance is not so high—Malta, Gibraltar, and Hong Kong Otherwise the Commonwealth is completely covered. Agreements are in force, so far as non-Commonwealth countries are concerned, with the United States of America, France, the Netherlands, Norway, Sweden, Denmark, Finland, Burma and Israel. An agreement has been reached with Belgium, and is being reached with Greece, and, subject to one or two small points, with Western Germany. Negotiations are going on with Switzerland and Austria.
So the right hon. and learned Gentleman will see that a very wide range of agreements has already been reached. When we received this recommendation of the Royal Commission we weighed very carefully the advantages to British firms operating overseas of the granting of relief against the possible disadvantages to the conclusion of double taxation agreements, which might be affected by our granting relief unilaterally. Taking into account the number of countries with which we have not got agreements and the unlikelihood of there being agreements with them because of their little advantage to them, from their point of view, we did think that, on balance, to grant this relief unilaterally would be justified in the national interest, and that the quite substantial cost of £3 million would be fully repaid by the compensating advantage of the removal of competitive disadvantages under which British firms are at present labouring.

Mr. Jay: It is agreed, of course, and always was, that a concession of this sort is likely to be welcome to the trading companies concerned, but, as has been stated, the objection was always felt to be that if unilateral relief was given it would not be so likely that we should reach further double taxation agreements with those countries which hitherto had refused agreement. I do not think that the hon. Gentleman will deny that they do require some incentive, and that the incentive is lessened if this relief is given.
The hon. Gentleman has replied to that point only that we have succeeded in reaching a number of additional agreements and that a larger number of countries are covered, but surely the question still remains: Is he satisfied that, in the case of those countries not yet covered —and there are, as he admits, some—we have sufficient weapons left in our hands now that this change has been made to induce them to reach an agreement in future? Have the Government any reason to think that it will now be easier to persuade the remaining reluctant or recalcitrant countries to make an agreement without this type of instrument?

Mr. Maudling: The major point is that we felt, for the reasons I have stated, that our unilaterial action would not gravely affect the reaching of agree-

ment with those other countries, because those other countries concerned have very often very little interest in making agreements, as they have no firms operating here, while British companies are operating there. We think that the disadvantage of the reduction of the possibility that further agreement will be reached is very much less than it has been in the past. It is still some disadvantage, but weighing one against the other we think the advantage to industry is much greater than the disadvantage to the possibility of concluding further double taxation agreements

Mr. Gaitskell: This is obviously not a party matter but a highly technical issue, and it is on that ground that I would press the hon. Gentleman a little further on the matter. What has happened recently to cause the change in view? It may simply be, of course, that the judgment of the Chancellor, the Economic Secretary and the Financial Secretary is different from ours on this matter, but I wonder whether there has been any new development in the last year or two about the prospect one way or the other of reaching agreement with the various countries concerned. That is my first question.
The second question I should like to ask is this. The Economic Secretary felt that now there was no prospect of an agreement with India on a 100 per cent. basis. I think that India is one of the most important countries concerned, and I was a little depressed by his reply just now, because it seemed to suggest that agreement with India was now hopeless, and that there was no chance of getting any agreement at all. I should have thought that in the case of India there would have been every incentive, so far as the Indian Government were concerned, to obtain the import of foreign capital. I should think, therefore, that we are giving away a possible inducement in making this unilateral concession.

Mr. Maudling: There have been certain developments in the last year. I think the main one would be that some of the negotiations are proving more difficult and more protracted than we had suspected. Another development is the growing competition in some of these countries which makes it very important


for us to give this assistance to our enterprises. The third factor is the Interim Report of the Royal Commission, which was specially asked for and which added great weight to this.
We certainly have not abandoned hope of concluding these agreements. We consider that they are valuable and we shall continue to try to achieve them, particularly with India. However, as the right hon. Gentleman knows, the negotiations with India started in 1949, and they have not proved at all easy; there are a number of technical difficulties. In the circumstances we did not feel that we should be justified in delaying this measure of relief to industry by reason of the continuation of those negotiations. Certainly, we have not abandoned hope, and we shall continue to try to achieve those agreements.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 25.—(TERMINATION AND AMENDMENT OF EXCESS PROFITS LEVY.)

Mr. Boyd-Carpenter: I beg to move, in page 26, line 17, at the end, to insert:
(2) Where the functions of a body corporate consist wholly or mainly in the holding of investments, the body corporate, by notice in writing given to the Commissioners of Inland Revenue at any time within twelve months after the end of the period of charge to the excess profits levy, or such longer time as the Commissioners in their discretion may allow,—

(a) may, if it is not a member of a group within the meaning of the Twelfth Schedule to the Finance Act, 1952, elect that section fifty-two of that Act (which makes special provision for calculating excesses and deficiencies of profits in the case of investment companies) shall not apply or be deemed ever to have applied to it;
(b) may, if it is the principal member of a group within the meaning of that Schedule, being a group in which the functions of each of the members consist wholly or mainly in the holding of investments, elect that the said section fifty-two shall not apply or be deemed ever to have applied either to it or to any other member of the group;
(c) may, if it is the principal member of a group within the meaning of that Schedule, not being such a group as aforesaid but being a group such that substantially the whole of the functions of a single body corporate which combined all the functions of the members of the group would consist in the holding of investments, elect that subsection (2) of the said section fifty-two shall

not prevent or be deemed ever to have prevented the section from applying either to it or to any other member of the group;
and such additional assessments, reductions of assessments and repayments of tax shall be made as are necessary to give effect to the election:
Provided that, where an election is made by a body corporate under paragraph (b) or (c) of this subsection, there shall not by virtue of the election be recoverable from any other body corporate any greater amount of tax or any greater sum under paragraph 20 of the said Twelfth Schedule (which enables the principal member of a group to recover from another member sums paid by the principal member on account of the tax in respect of the profits of the other member), than would have been recoverable if the election had not been made.
This and the proposed Amendment in page 26, line 20, to leave out from the beginning to the end of line 29, are linked closely together, and no doubt it would be convenient to discuss them at the same time.
The combined effect of these Amendments, as the Committee will have appreciated, is to take out the present paragraph (a) of subsection (2) and to substitute the words on the Order Paper. Both the Bill as it stands and the Bill as it will read if the Committee are good enough to accept my right hon. Friend's Amendments, are designed to implement one of the two undertakings which were given in the course of debates last year on the Excess Profits Levy. As the Committee will remember, at an earlier stage of our debates my right hon. Friend indicated that, in view of the approaching demise of this tax. he was not proposing any changes in it other than two, of which this is one. which resulted from the undertaking he gave last year.
I can very briefly explain the effect of this Amendment. The Committee will recall that last year there was some discussion on what is now Section 52 of last year's Finance Act on the subject of franked investment income. The outcome of that debate was that my right hon. Friend agreed that a concession should be made in this respect, but only to investment trusts and not to trading companies. During the course of the debate, my hon. Friend the Member for Lang-stone (Mr. Stevens) raised the question whether, in connection with certain groups mainly but not exclusively consisting of investment trusts the benefit of that concession might not be less by


reason of the existence of some quite small trading company in the group.
On behalf of my right hon. Friend I gave an undertaking that we would watch the position, and on Second Reading I mentioned that the result of that consideration of the position and our watch upon it was to discover that one or two cases had arisen—I gave one example on Second Reading—in which the intention of my right hon. Friend's concession was largely frustrated in its application to a particular group or groups of companies by reason of the fact that, although the group consisted overwhelmingly of investment trusts, there was some company with quite small trading activities in the group. Consequently, both the Clause as it was originally drafted and the Clause as it will read if the Committee are good enough to accept this Amendment provide for those cases.
The words we propose which are particularly material on that aspect of the matter are those which appear in paragraph (c) of the Amendment. The test applied, which is set out in that paragraph, is where, if the group were a single company, it would be found that substantially the whole function of that single company was the holding of investments. That, of course, is designed to take care of just those marginal cases to which my hon. Friend the Member for Langstone drew attention last year.
6.45 p.m.
The main change which will be effected, however, if this Amendment is accepted, as compared with the Clause as drafted, arises on another aspect. My hon. Friend the Member for Scarborough and Whitby (Mr. Spearman) drew our attention to the fact that the Clause as originally drafted might, where deficiencies arise, actually have the effect of increasing the tax burden. Section 52 of the Finance Act, 1952, is, of course, intended to be a relieving and not a taxing Section, and we have therefore provided in this Amendment, in order to deal with that contingency, that either the individual investment trust or the group shall have the option whether they shall be dealt with as proposed or as they originally would have been under Section 52 of the 1952 Act. That, we feel, with the necessary administrative safeguards embodied in it, is a fair way to deal with this matter, and I submit it to the Committee as being

a proper method of implementing the undertaking which I gave on my right hon. Friend's behalf last year.

Sir F. Soskice: I should like to raise a short point with the Financial Secretary on this Clause. He says that the object —as indeed appears from the Amendment —is to provide for the case of a group of companies in which there is one company whose trading activities would be substantially, shall I say, non-existent, so that substantially the functions of the single company would be the holding investments. What I should like to ask him—because it causes some disquiet to my mind—is whether he really thinks it will be practically and legally possible to give effect to the words which deal with that situation; that is to say, the words
substantially the whole of the functions of a single body corporate … would consist in the holding of investments.
I cannot really conceive what that means. How is it measured? One assumes the group and then coalesces the group into a single company; one of the members of the group is a trading company, and having notionally coalesced the group into one, the question then is whether substantially all its functions are the holding of investments. It seems to me an extremely difficult legal and practical concept.
If the Financial Secretary tells me that his legal advisers have advised him that it really is possible to give practical effect to such a provision, so be it; but I should like him to tell me whether those who have advised him on the legal aspects of this have pointed to any other similar provisions in the Income Tax code or the Excess Profits Tax code. I see the Minister seeking for sustenance from the Box, so perhaps I had better go on talking until he has got it.
The Minister knows what I really want to know. I cannot call to mind—and I say this to him quite seriously—any similar phrasing elsewhere in the Income Tax code. It may be that there is quite a lot. but it seems to be very difficult to see how practical effect is given to it. How is it to be measured? How is the turnover to be measured? How is the shareholding to be measured? How can one look at the broad substance of it? What is going to be done? How are they to know that there are a number of companies which operate as one group


and that substantially all the operations of the group consist wholly in the holding of investments?
I hope the hon. Gentleman will be able to reassure me on these two questions. Is he advised that it will be practically possible to give legal effect to this, and can he point to any precedent of similar wording? Can he give me the reference to any authority in which wording of this sort has been construed? If he can, I should be perfectly content. When he has got his advice from the Box, I will sit down and hope that he will give me the information for which I seek.
Obviously if the result of putting a provision of this sort into any taxing code is simply to create confusion, one makes things worse than they are without the Clause there. I hope that due consideration was given to this point before the Clause was drafted, so that once it is part of the tax code it will not give rise to a whole progeny of new decided cases, all of which will go to a very high tribunal which will ultimately confess it is in difficulties in construing the words. Now that the right hon. Gentleman has got the information, I will sit down and give him the opportunity to reply.

Mr. E. Fletcher: It may be convenient while the Minister is considering his reply, if he is able to make one, to the very serious point which my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) has raised if the Committee would examine for a moment the very unusual position in which it has arrived with regard to this Clause.
This Clause is dealing with the Excess Profits Levy, which we are all glad to say, is coming to an end this year, and what the Chancellor is now trying to do, as I understand it, is to amend the provisions of the Excess Profits Levy which is due to come to an end this year, and to amend them retrospectively. I am wondering whether we shall ever reach finality in connection with this levy.
We remember the trouble which we had last year. When the Finance Bill was introduced last year, there was a series of Clauses dealing with the Excess Profits Levy and on the day on which we were due to discuss the Excess Profits Levy, the Chancellor put down a whole series of Amendments, some 75 in all, which he

invited the Committee to consider at a few hours' notice. On that occasion, the debate was adjourned for a couple of days so that hon. Members might try to understand the substance of the Chancellor's Amendments.

Mr. R. A. Butler: I think that it is time I intervened. The Financial Secretary has already drawn attention to the fact that I made a statement about this in my Budget speech. These particular points are in answer to promises made by myself on behalf of Her Majesty's Government. It may seem strange to hon. Members opposite, but we believe in fulfilling our promises, and that is all that we are doing.

Mr. Fletcher: I really cannot allow that to pass. Since the Chancellor's Budget statement we have had a speech by the Financial Secretary in moving the Second Reading of this Bill, and in particular, when dealing with this Clause, he gave an explanation which will be found in the OFFICIAL REPORT of 7th May. He then tried to explain to the Committee what the Chancellor is now trying to explain. On 7th May, in the Second Reading debate, the Financial Secretary said that he was then introducing as part of this Clause something designed to change the provisions of the Excess Profits Levy, pursuant to undertakings which were given last year, and the Financial Secretary expounded at great length the merits of Clause 25 (2) which he is now asking the Committee to withdraw.

Mr. Boyd-Carpenter: No.

Mr. Fletcher: Oh, yes. At the moment we are considering two Amendments on the Order Paper in the name of the Chancellor of the Exchequer. I am considering the second one. The second Amendment in the Chancellor's name is that we should leave out from the beginning, to the end of line 29; in other words, we should leave out the whole of subsection (2, a) of Clause 25.
About a month ago, the Financial Secretary argued to us at great length why Clause 25 (2, a) should be introduced, and he said then what the Chancellor has now said, that Clause 25 (2, a) was intended to give effect to certain undertakings given last year. What has happened since 7th May to make it necessary for the Financial Secretary to want to omit from the Bill the whole


provision which he thought necessary on 7th May and to introduce an entirely new form of words?
The only clue that we have been given to that, as I understand it, is that the Financial Secretary has had a communication from the hon. Member for Scarborough and Whitby (Mr. Spearman). We have not seen it. I do not know what it is. I do not know whether any other Member of the Committee knows what it is. It does not seem to me to be treating the Committee with respect that on the Second Reading of the Bill we should be told that it is necessary to amend the Finance Act, 1952, in one part, and when we come to the Committee stage we should have no clear explanation why a different Amendment is necessary. It is all very well for the Chancellor to say that this is in pursuance of an undertaking given last year, but that is another matter of complaint.
The Chancellor has had a whole year since the discussions on the Finance Bill last year in which to try to get the Excess Profits Levy into order. We thought that it was in order when this Bill was produced. We thought that Clause 25 was at last getting it in order. Now there is another Amendment. How many more Amendments will be wanted, which are all retrospective, before this levy comes to an end this year? I think that the Chancellor must recognise that the Excess Profits Levy has had a very unhappy fate. I know that is not his fault. We all know that he was driven to introduce the Excess Profits Levy last year because of a passage in the Conservative Party's manifesto for which he was not responsible. But his having introduced it, and, as it went on, having amended it from time to time, places Members of the Committee in a very great difficulty.
This Amendment was put on the Order Paper only quite recently. We have had only a very short time in which to consider it. The Financial Secretary did not tell the Committee what was the communication from his hon. Friend. He did not explain why the Amendment was necessary. Does it widen the scope of the Bill? Has he now found that he was not giving full effect to the undertaking which he gave last year and to the form of words he introduced in his Second Reading speech? What has hap-

pened since 7th May to make it necessary that we should have an entirely new form of words, couched in what, I think, is very slipshod English, introducing, as my right hon. and learned Friend the Member for Neepsend said, into our tax laws phrases which have never occurred before? I think that the Committee will want to probe this Amendment much further before they can accept it.
I want also to pursue the question of merit, to which my right hon. and learned Friend referred. How are we to tell which is the principal member of the group? What is to happen when there are two or more members of a group of companies each equal in status and in size? How are we to tell precisely how these phrases on trading are to be interpreted? Is the whole of this Clause to be retrospective in its operation? What has happened to make it necessary at this very late hour in the unhappy history of the Excess Profits Levy, just on the eve of burial, to have this entirely novel provision?
I am sure that hon. Members of the Committee, who have taken a great interest in the Excess Profits Levy during the last 12 months in trying to understand it, as the Government have changed their mind about it, want to know far more about it before we can allow Clause 25 to pass in its proposed form.

Mr. I. Mikardo: In intervening in this argument which up to now has been between lawyers, I feel a little like a caterpillar which has strayed into a vegetarian salad. When I read this Amendment, I was struck, although in a much less clear and less learned way, by the same points as were made by my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) about the difficulty within an organisation of comparing the relevant importance of two quite different activities which use two quite different standards of measurement.
I know little about the law, but I know a little about statistics, and one of the first rules of statistics is generally simply expressed by saying that one cannot add apples and pears, which is a simple way of saying that one cannot, by making a simple addition of numbers, add together two things which are measured in


different units. Nor can one subtract them, nor, most important of all, can one compare them.
7.0 p.m.
We are here faced with the problem of what unit will be used by whoever has to decide which of the two activities of a group of companies is more important than the other. Take the simple point about the employment of labour. It might be argued that one can measure the relative part played by two activities in the same organisaion by the ratio of the number of people employed in the two activities. If one had an organisation or group of companies some of whose work was the holding of investments but the rest of whose work was the manufacture of basic products, one would probably find that, even if the company were doing fairly well, its profit per employee on the manufacturing side might well be no more than £300 or £400, or even £200 or less per annum, whereas one employee with the very simple records required to be kept for the holding of investments, and the very small amount of work done per unit of turnover and per unit of investment held by investment companies, can turn over an enormous volume of business measured in sterling, probably being responsible for a profit to the organisation of many thousands of pounds.
One might very well have a group of companies employing an equal number of people on a manufacuring function and on an investment-holding function. Almost certainly in such a circumstance the profits of the group from the holding of investment would be many times greater—perhaps 10 or 20 or even 30 times greater—than the profits which it drew from its manufacturing activities. If whoever has to decide whether the manufacturing function is or is not a substantial part uses the criterion of profit, he will say "Since the manufacturing function accounts for only, say, 5 per cent. of the profit, it is not substantial and the overwhelmingly main business of the group is the holding of investments." But if he chose to measure whether it is substantial or not by the number of people employed in it, he might well find that the activity which accounted for only 5 per cent. of the profits of the group absorbed 40 or 50 per cent. of the employees of the group.
I do not see any guidance in the Amendment as it is drafted to enable anybody to decide which of those two criteria he should use. Indeed, they are not the only criteria which may be used. The amount of capital tied up, the amount of turnover and all sorts of other considerations might enter into a decision about the relative importance of the two activities. Unless there is some precedent, which I do not know, which gives guidance, it seems to me as a poor layman that the administration of the Clause might present very serious difficulties indeed, and I should like to know what is proposed in that connection.

Mr. Stevens: When I raised this point during the Committee stage of the Finance Bill last year, I asked my hon. Friend the Economic Secretary to the Treasury what Her Majesty's Government meant by "substantial." Speaking from recollection, the answer I received was that the interpretation placed upon "substantial" was something of the order of 95 per cent. If that is the yardstick by which the Government interpret the word, I feel that most of the difficulties which have been postulated by the Opposition during the last half-hour automatically disappear, for the simple reason that the number of companies or groups of companies to which the proviso can apply will be very small indeed. I believe that in practice the difficulties will be found to be less real than they appear to be at the moment.
I wish to take this opportunity of thanking the Chancellor for honouring the undertaking which he gave me last year to look at the point again. Clearly, experience has shown that the point which I raised has inflicted hardship on a very small group of companies, but there is no reason why the rights of minorities should be overlooked, and thus I am grateful to my right hon. Friend.

Mr. A. J. Irvine: I can claim to have been in the Committee only a short time this afternoon, but when I entered the Chamber I heard the arguments of my right hon. and learned Friend the Member for Neep-send (Sir F. Soskice) on this point, and, not for the first time with his arguments, I was impressed by their cogency and force.
There was a time when the Financial Secretary enjoyed a distinction which he cannot claim today, the distinction of practising in the law. I have no doubt that at that time he devoted a substantial part of his undoubted gifts to such a problem as that of determining whether or not a "substantial part" of rent was attributable to furniture and to services. He will recall what a considerable amount of argument and discussion was involved before those words were construed and how in the result the courts came to the conclusion that, in order to give the words adequate sense, very elaborate formulae and figures ought to be applied.
When that is the inevitable consequence of an expression in a statute, it is in principle desirable that the definition— the necessary definition, as it proves to be—should be given in Parliament, for Parliament knows what it means. Rather than that time should be unnecessarily expended by the courts in trying to determine what Parliament means, it is desirable that Parliament's intentions should be made clear in the law. The hon. Member for Langstone (Mr. Stevens) has proposed a figure. He understands that "substantial" in this context will mean 95 per cent.

Mr. Stevens: I did not propose the figure. I said that my recollection was that that was the figure.

Mr. Irvine: I am much obliged to the hon. Member. His understanding is that "substantial" in this context will mean 95 per cent. That is an indication of the hon. Member's understanding of the matter. If that is the understanding of the Government, a figure or something more explicit than the form of words in the Clause ought to be incorporated in the Bill.

Mr. Boyd-Carpenter: The two points which have arisen in the debate are that raised by the right hon. and learned Gentleman the Member for Neepsend (Sir F. Soskice) on the use of "substantially" and that raised by the hon. Member for Islington, East (Mr. E. Fletcher) as to why we thought it necessary to propose to the Committee the alteration to the provisions of Clause 25. I should like first to deal with the second point.
I thought I had succeeded, when moving the Amendment, in putting forward

clearly but without undue length the reason we thought it necessary to make the change, but apparently I have not succeeded in the case of the hon. Member for Islington, East, so I will try again.
The Clause, as originally proposed on Second Reading, and as it will read if the Committee accept the Amendment, will carry out an undertaking which I gave on my right hon. Friend's behalf on a point raised by my hon. Friend the Member for Langstone (Mr. Stevens) that we would deal with any difficulty which arose from the provision in last year's Act that to secure the advantages of Section 52 a group must be composed entirely of investment companies. That is carried out by the Clause as amended and by the original Clause, but, as I said in moving the Amendment, it was drawn to our attention by my hon. Friend the Member for Scarborough and Whitby (Mr. Spearman) that the form of words we were using to carry out that undertaking could have the effect in a theoretical and not impossible situation of not relieving from tax but of imposing an additional tax.
It was not our intention in Section 52 last year, nor is it our intention this year, to use this particular provision for the imposition of extra taxes. It is indeed a relief provision, and it is in order to prevent the Clause having the effect of imposing additional taxation that we suggested to the Committee that it should go into the Bill in this amended form.
The right hon. and learned Gentleman the Member for Neepsend raised the question of the word "substantially," and, if he will allow me to say so, in general I agree with him that the word "substantially" is one which can give rise to a certain amount of difficulty, as indeed has been suggested from his own experience by the hon. Member for Edge Hill (Mr. A. J. Irvine) in another context. Equally, it is in our view the appropriate word to use here in these particular circumstances, for the reasons which I will now give.
The object of this Amendment is to relieve a very small number of cases— I agree with my hon. Friend the Member for Langstone that there are very few which have come to our attention—of a possible injustice on the complete investigation of a company's position and trading. It will not be in very many cases,


and I understand that no difficulty will arise, or is likely to arise, in the Commissioners deciding what "substantially" means in this context. I can give the right hon. and learned Gentleman the assurance that before putting these words into the Amendment we considered this aspect of the matter, and, indeed, how the very use of the word "substantially" would tend to put a good many people to inquiry, but we came to the conclusion on the advice available to us that the difficulty would not arise.
The right hon. and learned Gentleman very properly asked for precedents. At that time I had not a file beside me, though, of course, I did make inquiries. The best and the nearest one that I can give is that in last year's Finance Act on this very topic of the Excess Profits Levy. As many hon. Members will recall, last year's Finance Act contained the Eleventh Schedule, and in it there are provisions for transfer, and in particular the actual word concerned appears in paragraph 2. As the right hon. and learned Gentleman will recall, the words provide that:
Where the transfer … is not a transfer of the whole or substantially the whole of the transferor's trade or business, sub-paragraph (1) of this paragraph shall have effect in relation to the transfer but as if …
and so on. Therefore, in response to the right hon. and learned Gentleman, I can point out that in last year's Act on this topic this same word was used.
I am not seeking to argue—and I realise I should not convince the right hon. and learned Gentleman—that this is a particularly good or bad word to use. I know that it can give rise to difficulty, but it seems to us that, in dealing with this small number of awkward cases, it is the appropriate and most efficient word to use. If we were to adopt the suggestion of the hon. Member for Edge Hill and put a percentage in the Bill, we would find one case which on merits ought to be dealt with but was just over the average. That is the reason for the use of this word, and I do not take any exception whatever to the very proper desire of the right hon. and learned Gentleman to question it. Indeed, had our positions been reversed and I had seen it, I hope that I would have had the good sense to do the same.

7.15 p.m.

Mr. Austen Albu: The difficulty the Committee is in is that, although it has had the explanation from the Financial Secretary, the Amendment is really based on some communication he has received from his hon. Friend the Member for Scarborough and Whitby (Mr. Spearman). But the hon. Member for Scarborough and Whitby has not taken any part in our discussions so we do not know what it was he said to his hon. Friend, and it is difficult for us to know what are the reasons for this change. The hon. Member is not, I believe, a lawyer and we have heard lawyers discussing this at some length.
One of the things that puzzles me is that in one subsection of the amended Clause the words "wholly or mainly" are used and in the other part the word "substantially." I suppose there is a significant different, but the Financial Secretary said that it would be impossible to accept the proposal of my hon. Friend the Member for Edge Hill (Mr. A. J. Irvine) to put in any figure. On the other hand, his hon. Friend the Member for Langstone (Mr. Stevens) understood that the figure was 95 per cent.

Mr. Stevens: Once again I say that I did not say that I understood it or that it was my impression. I said it was my recollection, which might well be at fault.

Mr. Albu: The hon. Member's support for the Amendment was based on his recollection of some previous occasion, and the figure of 95 per cent. was given as representing the sort of figure that the word "substantially" would mean in this context. As my hon. Friend the Member for Reading, South (Mr. Mikardo) has already pointed out, it depends on what the 95 per cent. is on.
The hon. Member for Langstone says there is only a small minority of companies which might suffer hardship if this Clause were not passed and if this Amendment were not carried. Of course, one considers the question of hardship to individuals or to individual companies, but we have also to consider the Revenue and the protection of the Revenue from activities which are intended to get round what the Treasury intends. I therefore think that it is very important to know what really is intended by this Clause, and particularly why it has to be amended.
In the next Clause we shall be discussing a particular type of investment company, and I do not know whether the Iron and Steel Holding and Realisation Agency is coming under that, but we can discuss it later on, and it would be interesting to know.

Amendment agreed to.

Further Amendment made: In page 26, line 20, leave out from beginning, to end of line 29.—[Mr. Boyd-Carpenter.]

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Mr. Jay: We support the main purpose of this Clause. What, in substance, it does is to terminate the Excess Profits Levy, and, like most hon. Members opposite, we are very glad to see it go. Before it goes we ought to make clear our reasons for being glad to see the last of it. I suppose the disappearance of E.P.L. this year represents a victory for the Chancellor of the Exchequer over the Prime Minister. Perhaps it is because the Prime Minister is now concerned with foreign affairs that the Chancellor is at last allowed to get his own way in this matter. At any rate, we are glad to see the last of it.
I would only qualify our pleasure in one sense. Do not let the Committee overlook the fact that whereas E.P.L. is disappearing, the reduction which the Chancellor made last year in the Profits Tax is not disappearing. Therefore, the net effect of this operation on Profits Tax and E.P.L. is a lowering of the total taxation on profits. Let the Committee also take note that this has been carried out in the same two years in which the Government have imposed health charges on quite a substantial scale and, of course, have made a large reduction in the food subsidies. The total effect of this operation is a considerable transfer of the burden of taxation on to the poorer members of the community. That is the first lesson we have to learn from the disappearance of E.P.L. from this Clause.
The second is one which is perhaps even more familiar to us. That is the lamentable lack of planning that goes on in the Tory Party, both when it is in opposition and when it is in power. What has really happened to explain this extraordinary story of the E.P.L.? It all

began back in the autumn of 1951 before the General Election when the present Prime Minister was on holiday, so we were told, somewhere in Italy. The Tory Party programme was sent out to the right hon. Gentleman and, reading it by the seaside, he inserted in it this promise to introduce an Excess Profits Levy.
The evidence that the right hon. Gentleman was the source of it is quite clear from the fact that it appeared in the middle of two sentences about the wild extravagance and the dissolute, improvident expenditure, and so on and so forth, of the previous Government. [HON. MEMBERS: "Hear, hear."] I would point out to hon. Gentlemen who cheer that we were then spending a good deal less than the figure which the present Government are spending and which the Prime Minister calls "prudent husbanding of our resources." As, no doubt, the Prime Minister does not know what the figure is in either case, I do not think we need pay much attention to his claim.
However, without any consultation with those of his colleagues who study these matters, that pledge was inserted in the document and then, after the Election, the Chancellor found himself in his present position. Maybe he did not expect to be there because he had not taken a great part in our financial debates over the previous few years. Anyway there he was, with this albatross hanging around his neck. He was compelled by his devotion to the Prime Minister to come down and introduce this absurd tax which was condemned by everybody on both sides of the House.
What reason did the right hon. Gentleman ever give for bringing it before us and forcing it down the throats of his hon. Friends? The only thing he ever said was that he had to do it because the Tory Party had promised it. It is clear that this cannot have been the real reason, because there was hardly any other promise which they had made which they had not by that time already broken, not least among which was the pledge on food subsidies which the Chancellor, in a well-known speech, had indeed himself given in addition to various other people.
I believe the real reason was that the Chancellor, at that time anyway—now things seem to be improving—had never


had the real co-ordinating authority in the Government which previous Chancellors have had and which he ought to have been given if he was to have any chance of doing his job. I suppose the trouble was that he was not a member of the other place, like Lord Cherwell, Lord Leathers, Lord Woolton and the others, who were given supreme coordinating authority. Do not let us forget, therefore, that the present Chancellor has never been given that authority so far as we know, even to the present day. Of course, if there has been a major change, no doubt the Chancellor will choose this moment, in the Committee stage of the Finance Bill, at dinner time, to announce it to us. That would be typical of the way things are done in this Government.

Mr. R. A. Butler: It would not be typical of the order preserved in this Committee were I to give a description of the machinery of Government on a Clause dealing with the Excess Profits Levy.

Mr. Jay: That may be, but I do not know whether it would be wholly in conformity with the traditions of this Government always to remain within the rules of order. As I was saying, this tax was introduced because the Chancellor never had the same authority in the Government as Lord Cherwell, Lord Leathers, Lord Woolton and the rest of them. He brought in a tax a year ago in which he did not himself believe, which was condemned not merely by every hon. Member on this side but by every hon. Gentleman opposite, I think without exception. They had to defend it and they had to travel through the Lobbies night after night to vote for it. Respected Members of the party opposite, like the hon. Member for Edinburgh, South (Sir W. Darling), had to walk round and round voting for this tax, in which they did not believe. Indeed, even the hon. Gentleman the Member for Kidderminster (Mr. Nabarro) had to do the same, and I would remind the hon. Gentleman that we voted against it.
The more serious part of the story is this. After all, those debates, although they were lengthy, only went on for hours or days, but in addition enormous labour and torment was imposed on the officials of the Inland Revenue who,

month after month, have had to carry out the assessment and the collection of this absurd tax. And not merely they, but accountants throughout industry and, no doubt, secretaries of companies and thousands of persons in the business world have been engaged in working it out all for nothing, although they no more believed in it than did hon. Members of this House.
Now, of course, the Chancellor, having argued only a year ago that all this was absolutely necessary, that it was to carry out a solemn promise, and having forced it on all of us against our wills, comes along and tells us, without any real pretence or shred of serious argument, that we can now do without it and he advises the Committee to terminate it, as I am sure we shall do tonight. I suggest that this is a lamentable story of muddle, miscalculation and confusion.
As I say, the real reason must be that the Prime Minister is otherwise occupied. Lord Cherwell, I suppose, is now engaged on foreign affairs. So far as we know. Lord Leathers seems to have vanished into the dim distance for he does not even conduct his own Bills on transport in the House of Lords; and Lord Woolton appears to be doing absolutely nothing. I conclude by trying to derive some small lesson out of this unhappy story by recommending to the Chancellor on behalf of the whole Committee that he should ask the Prime Minister to terminate now not merely the Excess Profits Levy but the whole system of overlords in this Government as well.

7.30 p.m.

Mr. Mikardo: In one respect I must differ from the observations of my right hon. Friend the Member for Battersea, North (Mr. Jay). In his careful analysis of the motives of the Chancellor for introducing this tax last year and getting rid of it this year, my right hon. Friend was far too charitable. He called it a lamentable story of muddle, miscalculation and confusion. To my mind it is much worse than that. It is a lamentable story of deception.
The plain fact of the matter is this. The present Government, true to the traditions of their party, base the whole of their economic and financial policy on the idea of relieving taxation upon those who are well off and who do not work for a living by the process of increasing


the burden on those who do work for a living and who are not so well off. One of the steps in carrying out that transfer was to reduce the Profits Tax, but the Government knew perfectly well that if in the Budget of 1952 they had nakedly proposed a reduction of the Profits Tax at the same time that they were increasing the price of food by cutting food subsidies in defiance of all their pledges, their hand would have been too easily discernible to the whole country and they would have faced a great storm of protest. So they found a "pretty pretty" way out of the difficulty.

Mr. Gerald Nabarro: What about Sunderland?

Mr. Mikardo: I observe that the subterranean volcano of the hon. Member for Kidderminster (Mr. Nabarro) is in one of its phases of intermittent eruption, and I think the Committee will get on better without him. I was referring to what was taking place in the Chancellor's mind in framing his Budget in 1952.

Mr. Nabarro: Will the hon. Gentleman allow me——

Mr. Mikardo: In a minute. The event to which the hon. Member for Kidderminster wants to draw the Committee's attention with his usual irrelevance did not take place until long after the Budget debates of 1952, so as usual he is talking through his hat. Now he can talk a bit more through his hat.

Mr. Nabarro: I am grateful to the hon. Gentleman for giving way. He is suffering from his usual lapse of memory. Surely the Sunderland by-election took place after——

The Chairman: Order. This has nothing to do with this Clause.

Mr. Mikardo: I repeat what I said a little while ago. The hon. Gentleman, as usual, is suffering from a lapse of concentration. What I said was that the Sunderland by-election did not take place ——

The Chairman: We cannot discuss that now. We are concerned with Clause 23, as amended.

Mr. Mikardo: I quite agree, Sir Charles, but I did not start it. "Them as starts it must take the consequences."

The Chairman: I do not know who started it but I must stop it.

Mr. Mikardo: Very good, Sir Charles. I can now resume my argument, I hope. I am very sorry that I shall have to repeat part of it in order to take up the sequence again. I would have preferred not to delay the Committee in this way, but one is diverted by these irrelevant interruptions.
What I was saying was that what the Chancellor would like to have done in his Budget of 1952—I repeat for the benefit of the hon. Member for Kidderminster, the Budget of 1952—would be straightforwardly to reduce the Profits Tax. He dare not do it because he knew that if he had done it, the Government's policy of transferring money from the less well off people who work for their living to the better off people who do not work would have been too nakedly revealed and would have aroused a storm of protest.
Therefore, a highly ingenious method was thought out for cutting the Profits Tax in a manner by which it was hoped that people would not notice that the Profits Tax had been cut. What they did was to say, "We will put on an Excess Profits Levy, but as we are putting on an Excess Profits Levy we will reduce the Profits Tax a bit." That sounded quite reasonable. A year later the Excess Profits Levy is taken off, and as, my right hon. Friend the Member for Battersea, North has pointed out, the reduction in the Profits Tax which was made specifically to compensate for the imposition of the Excess Profits Levy, nevertheless is not adjusted when the Excess Profits Levy is taken off.
At the cost of only delaying the process for a year, what the Chancellor has done, in fact, is to get away with a reduction in the Profits Tax by a mechanism which made it appear as though the taxation on profits was made heavier instead of being made lighter. I hate to use strong words in this Committee, or elsewhere, but the least that can be said of this manoeuvre is that it is an extremely shabby one. When people get around to understanding it they will share that view of it.

Mr. Roy Jenkins: As my right hon. Friend the Member for Battersea, North (Mr. Jay) has said, this is the end of the rather brief life of the Excess Profits Levy, and I am glad to see that the Chancellor and the


hon. Member for Kidderminster (Mr. Nabarro), who are the only two Members of the Committee who last year tried to support the Levy on its merits, have both turned out to give it a fairly good funeral today.

Mr. Nabarro: I have been here throughout our deliberations on every day on which the Committee stage of the Finance Bill has been debated.

Mr. Jenkins: The hon. Gentleman is assiduous both in his attendance and in his interruptions and I would not suggest that anything other was the case.
We ought to ask the Chancellor at this stage whether he thinks this has all been worth while. After all, we had 28 Clauses in the last Finance Bill. We had a record number of Amendments, and then there was this proposal which he introduced so inconveniently and at short notice in the midst of our deliberations. It caused a great deal of trouble to all sorts of people, and I should like to know whether the Chancellor thinks it has been worth while to have the Excess Profits Levy. Whatever else happens, I hope that the Chancellor is not congratulating himself on the good that he has done by getting rid of it at the present time.
The hon. Member for Kidderminster made a most extraordinary speech on that point a few nights ago. He said that things were greatly improving and that there was a better future for industry because of three or four things which the Government have done. One of the things he said had been done was the removal of the Excess Profits Levy, which was having such a bad effect. It is as though the Government, when coming into office, had proceeded to lock up all my right hon. and hon. Friends on the Front Bench and a year later, after having let them out again, asked to be congratulated on having made possible the introduction of free speech and public discussion. There can be no room for congratulation here.
As my hon. Friend the Member for Reading, South (Mr. Mikardo) has said, one is bound to consider the link-up of this tax with the Profits Tax, and this afternoon I read what the Chancellor had to say about the relationship of these two taxes when he introduced the Excess

Profits Levy a year ago, actually on the Clause which was bringing about the consequential reduction in the Profits Tax.
It is true to say, as I am sure he will remind us when he speaks, that he has made it clear that he did not want to keep the Profits Tax at the level at which it previously was indefinitely. Like hon. Members opposite, he believes in reducing taxation upon industry when he thinks it can be done. But even though he may bring forward that argument in his own defence, this tax which he introduced with a good deal of moral fervour a year ago has, in effect, acted as a smoke-screen for the reduction of the total rate of tax upon profits.
The effect of the changes in two years has been to bring about a substantial reduction in the Profits Tax, both on retained profits, to which we might not object too much, and on distributed profits, without the Chancellor having to justify before this Committee a straightforward reduction in the Profits Tax. That certainly has made things very much simpler from his point of view. As I say, he introduced the Excess Profits Levy a year ago with a great deal of moral fervour, talking about merchant adventurers and saying that he was surprised that they did not make a greater appeal in this House, and he ought to say whether he thinks it desirable that, in effect, if not in intention, it should serve as a smoke-screen for the reduction in the total taxation upon profits without his having directly justified it.

Mr. Frederick Mulley: I do not wish to detain the Committee for long, but I think that the termination of the Excess Profits Levy at this stage is one of the most important items in the Finance Bill that we have to consider. I agree with both my hon. Friends the Members for Reading, South (Mr. Mikardo) and Stechford (Mr. Roy Jenkins) that the Chancellor last year did a very astute manoeuvre. It may be that he was actuated by a pledge, which seems to have been only a very temporary pledge, in the Election programme on which the Government were elected, but whether or not it was to fulfil a pledge or whether it was a subterfuge to reduce the total volume of taxation on industry it was certainly very effective.
In considering this Clause, the Committee should have before it the figures of total taxation on profits for 1952–53, in other words the year before the Excess Profits Levy came fully into force. The Committee appreciates that all profits taxes are a year in arrear. The total amount of Profits Tax and Excess Profits Levy combined was £379 million, made up of Profits Tax £376 million and Excess Profits Levy £3 million. In the next financial year, the only year apparently in which we are to have the Excess Profits Levy, the total estimated receipts from Profits Tax and Excess Profits Levy is £315 million, made up of £215 million from Profits Tax and £100 million from Excess Profits Levy. So even with the Levy the Chancellor has succeeded in reducing on the quiet the incidence of taxation of profits by £64 million.
To give the Committee some idea of the volume of that amount, I would say that it is exactly the same as the profit which the Iron and Steel Corporation made last year, as shown in the accounts just reported. That is a very serious matter for the Committee to consider. When we put forward a suggestion which would cost £1 million or £1½ million—I know it is a lot of money—it is always turned down; yet the Chancellor can get rid of £64 million without there being a proper debate or discussion about it in this House. What is to happen to the £100 million provided by the Excess Profits Levy? If the Profits Tax is not restored to the level at which it was before the Levy was imposed the Profits Tax will drop by a further £100 million; it will be just about half what it was when this Government came into office.
I see approving nods from the hon. Member for Kidderminster (Mr. Nabarro), so at least one hon. Member opposite would like to see the Excess Profits Levy go without there being any change in the present rate of Profits Tax. Before we are asked to take this important step, I think that, unpleasant as we thought the Levy to be, we should have some assurance from the Chancellor that he is at any rate going to see that profits continue to bear a fair share of the burden of the taxation of the country, because any tax is always a burden to anyone who pays it.
I do not want to be shot down in a very casual way, as is sometimes the way

of Treasury spokesmen when they reply to debates. It may be argued that one reason for the estimated yield of profits taxation in 1953–54 may be because the Treasury take a very pessimistic view as to the out-turn of the country's national income and prosperity for the year. If that is the explanation why the yield is estimated to be so very low—because businesses are doing very badly and not making profits—that is a point which should also be publicised as an achievement on the part of a Conservative Government, that businesses cannot, under Conservative Administration, make a reasonable profit, and they will be better off being more heavily taxed but making more profit on which to be taxed under a Labour Administration.

7.45 p.m.

Mr. Anthony Crosland: I do not wish to follow the general remarks on profits taxation which have been so effectively deployed by my hon. Friends. I wish to make just one comment on that subject, that is, to draw the attention of the Committee to the difference between the enthusiasm with which hon. Gentlemen opposite greet this reduction, which is what it is, of profits taxation tonight and their lack of enthusiasm last night for raising initial allowances to 40 per cent.
I say that because there is only one very striking difference between remitting taxation on industry by means of initial allowances and reducing the weight of profits taxation. In the one case the remission is gained by increased capital expenditure, and the other is something for companies to dispose of as they wish. I do not think that the difference between the attitude of hon. Gentlemen last night and tonight should pass without notice.
We are being asked to agree to Clause 25 standing part of the Bill. The most important part of the Clause is the first sentence, which states:
The period of charge to the excess profits levy shall end with the year nineteen hundred and fifty-three; …
I do not see how hon. Members can possibly answer the question whether we should vote for or against this Clause at the moment because we are very much without information as to how the Excess Profits Levy has worked. A number of my hon. Friends, perhaps more hasty in temperament than I am, have plainly


stated tonight that the Excess Profits Levy has been a bad tax and should be abolished. Before I make up my mind there is a good deal of information I should like which I think the Chancellor will be good enough to give when he replies to the debate.
The part of the Levy and the Clause which I am particularly concerned with is that regarding the special concessions given to various kinds of mineral workings. I should like to refer to Sections 55 and 56 of the Finance Act, 1952, because I should like to ask certain questions about the working of those Sections.
Section 55 is one of the E.P.L. Sections of the Finance Act, 1952. Without knowing how it has operated, I shall be unable to make up my mind whether this Clause should now stand part of the Bill. This was the Section about one of the most important parts of the Levy, which allowed to certain mineral working companies a so-called additional standard. Originally, this concession was made, as hon. Members will remember, because this took up a great deal of time in our discussions last year, to mines of metals and oil wells.
We then had a lengthy debate on the extent of the scope of the concessions out of which the Solicitor-General came distinctly badly. A number of hon. Members on both sides of the Committee asked that the concession should be extended to a great number of minerals many of which I confess I had not at the time heard of but which from what they said were evidently of great economic importance. The hon. Member for Croydon, East (Sir H. Williams) asked about sand and ballast. The hon. Member for Kidderminster asked about coal, and we had interesting dissertations on industrial diamonds, gypsum, fluospar and other things.
As a consequence of the pressure exercised on both sides of the Committee the Chancellor made a certain concession when we came to the Report stage last year; or, to be accurate, he made two concessions. The first was to agree, in Clause 55 (1), which creates the additional standard in an absolutely unqualified manner, that in addition to mines of metal and oil wells there should be added coal and asbestos. The further concession which he made, which is the one on which I should like information, was that he

agreed to insert a new subsection (2) in Clause 55. This led on Report stage to a most interesting discussion.
Hon. Members will remember that subsection (2), included at the Chancellor's insistence, on Report, was the one by which—I quote:
The Board of Referees may, on an application made in that behalf, by order direct, as respects a source of mineral deposits of a wasting nature of any kind other than those mentioned in the preceding subsection, …
That is, other than metal mines, oil wells, coal and asbestos. The Board might then decree certain things; it may then decide that the additional standard concession would apply to them. In other words, the Board of Referees was given a discretionary power to extend the additional standard concession to any other kind of mineral working whatsoever; and it was made clear by the Solicitor-General on the Report stage that all these various things which had been mentioned—gypsum, coal, sand and ballast, industrial diamonds and the like —would be eligible to apply to the Board of Referees and would be eligible for this concession. If we are to make up our minds tonight as to whether Clause 25 should stand part of the Bill, it is important to know how this concession has worked. I am surprised that it has not been mentioned before.
A great deal of criticism was raised at the decision to give this discretionary power to the Board of Referees. My hon. and learned Friend the Member for Kettering (Mr. Mitchison), whose speeches in the Committee are only spoilt by certain violence of language, referred to the Board of Referees as a "collection of defunct dodoes" and animadverted against them in a number of extremely sharp passages. He doubted, first, whether they existed as a physical fact, and, if they did exist, he was certain that they were incompetent and ignorant of the matters put up to them for decision. We must know whether my hon. and learned Friend's jeremiads on this subject have or have not been proved correct. Have the Board of Referees over the last year proved to exist? It must now be a matter for physical proof one way or the other whether these chaps are actually alive. That is the first thing on which we require information.
Assuming that the Board of Referees does, in fact, exist and that it meets and


has an office, telephones, secretaries and the like, I should like to ask three specific questions of the Chancellor. How many applications have been made to the Board of Referees under subsection (2) of Section 55 of the 1952 Act? It obviously is interesting to know whether they have had five applications or whether they have had 55. Without knowing these figures, one cannot tell how damaging or otherwise Section 55 was or how helpful or otherwise this last-minute concession has been.
Secondly, I should like to know—for obvious reasons, the answer may be the same as to my first question—how many separate types of mineral deposits, workings, or materials are affected by the concession made under Section 55. In other words, what proportion of the total number of applications made to them were accepted by the Board of Referees? Have hardly any additional minerals other than coal, asbestos, metal mines and oil qualified for this important concession, or, have the majority of minerals qualified? It is important to know that in order to get some quantitative idea of how the Section has operated. I hope I am not putting anyone to any inconvenience in asking these questions, but they are questions of such importance that there must be somebody here who is armed with the answers to them.
This is the third rather interesting question which I should like to ask. Assuming that some concessions have been made under Section 55 (2), what is the approximate cost of those concessions? If we are armed with the total number of concessions made and the cost of those concessions, we can then decide whether the insertion of subsection (2) on the Report stage last year has been of any great use to the national economy or whether it was virtually a waste of time. That is the first series of questions which I want to ask. They are not questions which anybody could consider unreasonable.
I should like now to pass to Section 56 of the Finance Act, 1952, which also concerns the same broad issue, with which I am very much concerned, of the special concessions made to minerals.

The Temporary Chairman (Mr. H. Hynd): The hon. Member is, of course, entitled to ask what has been the result of last year's legislation, but I hope he is

not going into the same amount of detail as to last year's discussions as when asking his last series of questions.

Mr. Crosland: You place me in difficulty, Mr. Hynd, but I shall certainly try to keep my questions rather briefer on Section 56 than on Section 55. I must be on stronger ground on Section 56 of last year's Act because it is, in fact, mentioned in the Clause which we are discussing.

The Temporary Chairman: The hon. Member expressed the hope that he was not putting anyone to inconvenience. He was certainly beginning to put the Chair to some inconvenience, and I am only warning him.

Mr. Crosland: In that case, I shall confine my remarks to a rather narrower subject. I will address myself directly to the Question. "That the Clause stand part of the Bill." The part of it with which I am particularly concerned is subsection (2, b). That subsection says that
section fifty-six (which relates to the allowance for additional output of certain minerals)
may be
applied to any mineral.
Let me give briefly the history of the insertion in the Clause of subsection (2, b). The last thing I want to do in giving hon. Members an outline of the history is to go into too much detail about our debates last year. Section 56 of the 1952 Act, an addition to which we are now being asked to accept, was introduced as a Clause which was intended to encourage the production of minerals. It was one which had a very curious history, which I cannot go into at length now. I can only say that, briefly, Section 55 was introduced as a new Clause and, despite the effect of coming in at that late stage of the Bill, the definition of what was eligible for this second concession was very narrowly drawn. It was because the narrowness of the application of the Clause was a great deal criticised that the Chancellor has now added subsection (2, b) of Clause 25.
I should like to ask a number of questions on subsection (2, b), which concerns Section 56 in last year's Act. Why—I should find it hard to know into which Lobby to go without knowing the answer


—is there no reference in subsection (2, b) to the Board of Referees?

Mr. Strachey: They do not exist.

Mr. Crosland: This may suggest, as my right hon. Friend reminds me, that they do not exist, that it has been discovered that they are a wholly mythical body and, therefore, no allusion is made to them this year. But it is, on the face of it, curious that the concession made under Section 55 was discretionary to the Board of Referees. The concession made now retrospectively, to be added under Section 56, contains no mention whatever of the Board of Referees. This time the Treasury are to certify whether additional minerals are or are not to qualify. This, of course, largely concedes the points which were made from this side of the Committee last year. My hon. and learned Friend the Member for Kettering spoke very heartily, contrasting the Board of Referees unfavourably with the Treasury. His sentiments on the subject won widespread approval on this side of the Committee.
Why, then, has the Chancellor suddenly adopted what we were saying last year in the concession which he is making this year? Does this mean that the Board of Referees have proved wholly unsatisfactory in the way in which they have operated in respect of Section 55? Is there something wrong with the Board of Referees, something that we do not know, to which the Committee's attention ought to be drawn? This is important, and perhaps I will extend my remarks on it a little to make sure of getting an answer. It is important that we should have a definite statement from the Chancellor as to whether he is for or against the Board of Referees and to explain the inconsistency of inserting reference to them in Section 55 of last year's Act and not inserting them now in Section 56.
I should like some guidance as to how the Chancellor anticipates that subsection (2, b) of the Clause will operate. The Treasury has to certify that an increase in the output of certain materials is in the national interest. Hon. Members will remember that this was the form of words originally used in Section 56, but only applied to metals, mines, oil wells and asbestos. It is the same form of words which is now in subsection (2, b) which we are discussing, and the

Treasury may certify in addition that the increase in output of other materials is in the national interest.
8.0 p.m.
What is in the mind of the Chancellor about this? Does he propose that under this retrospective concession he is now making a great number of minerals will be certified and get the concession given by Section 56, or only a very few? What has he in mind? Will he give it to coal and not to gypsum, to industrial diamonds and not to fluorspar? There must be a kind of guiding principle which the right hon. Gentleman has in mind to help him to operate the concession he is now making.
It would also be interesting to know— this again is essential to our being clear to decide on this in a few moments' time —of how many metals the Treasury have already certified that an increase in output is in the national interest. That is to say, to what extent has subsection (1) of Section 56 of last year's Act in fact been used? This information may have been made public; if so, I confess that I have not seen it. I see an hon. Member opposite with close knowledge of this subject. We clearly cannot decide whether or not to accept subsection (2, b) as part of Clause 25 today unless we know whether subsection (1) of Section 56 of last year's Act has been operated and what force and importance the Chancellor attaches to these matters.
I think it fair to say that during the discussions on the Excess Profits Levy last year, on Committee stage and Report, Sections 55 and 56 took up an enormous proportion of the total time and all hon. Members agreed that these were among the most important Sections of that Act. I apologise if I have trespassed on the time of the Committee, but I think all hon. Members will agree that without an answer to the very definite and factual questions I have put we shall be in great difficulty in considering which way to vote, or if we can vote at all.

Mr. R. A. Butler: It will be quite easy to dispose of the simple points put by the hon. Member for Gloucestershire, South (Mr. Crosland). I will therefore not detain the Committee long upon them before replying to the more bellicose observations of the hon. Member for Reading, South (Mr. Mikardo).
The hon. Member for Gloucestershire, South asked me some questions on Section 55 and Section 56 of last year's Finance Act, and in particular applied his attention to the subsection of which we have been hearing a great deal (2, b) of Clause 25 of the present Bill. Dealing first with Section 55, he asked some questions about what applications had been made to the Board of Referees. He asked three questions—first, what was the number of applications; secondly, the nature of the minerals affected; and thirdly, what was the cost. I can give the answer to those questions straight away. Only one or two applications under subsection (2) of Section 55 have reached the Revenue, and so far no decision has been made upon them. That means that it is not possible to give a computation of the cost, and I am not in a position tonight to give the nature of the applications. That is broadly the reply to the questions on Section 55.
The hon. Member, owing to his personal interest in this matter, will be as fully aware as are the experts that Section 55 refers in general to a wasting asset and Section 56 to the public interest. That is the difference between the two Sections, which the hon. Member appeared not to know, but needed to know, before going into the Lobby. His reference to the Lobby makes me realise that hon. Members opposite have decided to vote against abandonment of the Excess Profits Levy. If so, I hope the public will pay due attention to the fact of the reversal of opinion which has been allowed to slip out of the bag via the hon. Member. If the hon. Member is in all this complexity, I think the Committee will be prepared to leave him in it. If he does not realise the difference between Section 55 and Section 56 of the 1952 Act, there is no reason why we should further enlighten him.
The hon. Member is, however, entitled to an answer to his question as to which types of mineral are referred to in this paragraph. Under Section 56 relief will have to be subject to the overriding consideration that the Treasury are satisfied and certify that an increase in the output of the mineral in question over output at the normal rate is in the national interest. The hon. Member asked what types of mineral were involved. It might well be

necessary for Ministers to make a statement on this matter at a suitable date. I can give an indication that they comprise such things as china clay anhydrite, gypsum, pyrites, pitchblende, fuller's earth, and so on, and include ballast, sand and gravel, about which we have had discussions. In the light of what the hon. Member has brought forward, I will investigate whether any further statement is necessary so that people will know where they are; but that, I think without any undue trouble gives the answer he wanted to his perfectly legitimate question.
I come now to the rather more bellicose observations of some other hon. Members. This debate has been remarkable for the various birds which have flitted into our midst. They have included dodoes and albatrosses, but the most noble of all is the plumage of the right hon. Member for Battersea, South (Mr Jay) himself. I understand that it is very bad luck to destroy an albatross, but the same does not apply to the bird sitting opposite me. I will at once take up this challenge.
The right hon. Member attempted to make out, in the opening remarks of his spritely speech, that the Government have a deep and sinister motive in all these elaborate changes in our taxation system which, as he said, had been combined with the increase in the health charges, and by some sinister method included a reduction of the profits tax cloaked by the original introduction of the Excess Profits Levy. This is a naked and unashamed attempt to bring the class war into the placid waters of the Finance Bill during an exceptionally technical discussion.
When the right hon. Member brought in the Italian holiday of the Prime Minister and an entirely apocryphal account of how E.P.L. was invented, and then lapsed into a discussion of food subsidies, I am not surprised that the Committee became somewhat confused before he fortunately resumed his seat. The position, as I see it, is that a definite charge has been made by the hon. Member for Reading, South that E.P.L. was introduced originally with the minister object of reducing the Profits Tax under cover of a smokescreen. If I were as clever as that, I would change places with the hon. Member on the board of the "Tribune."

Mr. Mikardo: I want to bring the Chancellor up to date in all matters. Perhaps I may be allowed to inform him that I am not a member of the board of the "Tribune." He is no more accurate about that than about some other observations he has made to the Committee.

Mr. Butler: I must not advertise the great extent of the hon. Gentleman's influence, but I sympathise with his disappointment at not having reached the apex of his career as yet.
The hon. Member dared to say that I was responsible for a shabby trick and he led up to the culmination amidst a deathly silence in the Committee. It is, of course, possible to interpret every action, including the most honourable, in a shabby way. There is no denying that Profits Tax was adjusted at the time of the introduction of the E.P.L., and for the very good reason that if we had superimposed E.P.L. on top of the great weight of industrial taxation which already existed, the burden would have been quite intolerable for the industries of this country.
As it is, by the time I finished with last year's Budget, our industrial taxation, leaving aside all question of taxation under the ordinary system, was the highest in the world and it was bearing most unfairly on industry at a difficult time. We therefore did make the adjustment in the Profits Tax, and in particular we made a very heavy reduction in the rate of tax on undistributed profits. We did that on purpose. But when we had finished, the weight of industrial taxation was still the heaviest in the world. It amounted to 60 per cent. and, in the case of certain companies, to over 80 per cent., if they happened to fall in the wrong category under E.P.L. So much for the position then.
When I came to review this year's Budget, I looked at all the methods—as I declared in my Budget statement—of trying to relieve companies and in particular of trying to relieve the developing companies and those involved in the export trade. I was quite open and frank with the Committee. Every one of those companies said that the greatest impediment against expanding and developing and taking part in the export trade was the Excess Profits Levy. I therefore

came to the only honourable conclusion I could come to, to see whether we should end this levy at a future date.
I must say, despite the speeches which have been made this evening, which have been completely in the ordinary way of political controversy, that I think the Committee as a whole have been very generous about this action and understand the genuine motive behind it. It has not been a complete waste of time. We have gained £100 million and we shall gain £100 million next year. This is at a time when our defence programme was and is particularly heavy, and when we are carrying great burdens in the social field. The British people are probably carrying a greater burden than has ever been carried before, and during this exceptionally difficult period, for two years running, we shall have an extra £100 million in revenue from the Excess Profits Levy.
It may be said that it was a pity to introduce it this year, from the point of view of the complexity of the tax and the burden on the Revenue, accountants and everyone else. That is because it has again been shown—because there was a feeling even before this tax—that the attempt to compensate exactly for excess profits has, in the history of the world, whether in America or Britain or anywhere else, proved to be almost beyond the ingenuity of the human mind. We have discovered that in fact the tax has been very complicated and extremely difficult to bring into force and to operate in an entirely fair manner. But I am pleased that it has been of some service to our national welfare.
Hon. Members will remember that in the course of my Budget statement I made the further remark that before the Excess Profits Levy comes off, and before the next Budget, it will be possible to review the whole burden of industrial taxation in relation to the national burdens we are carrying and the economic situation. It is quite clear that anyone holding my responsibilities would have been obliged to do that. I say that so as to show that when the time comes we can see what the effect of this removal will be and what will be the effect upon the economy in the future. I say it to indicate that there is no intention of making any change, either in the Profits Tax or in any other tax, without its


having the full glare of the attention of the House and of the public focused upon it. If this debate has not served that purpose, there will be future opportunities of showing what type of taxation and what burden of taxation is tolerable in the future.
8.15 p.m.
Of one thing I am certain, that there appears to be a radical difference of opinion between hon. Members opposite and those on this side of the Committee. So far hon. Members opposite who have spoken have seemed almost to regret any tendency to reduce taxation. We, on the other hand, feel that with this burden of taxation it is impossible to get the drive and spurt forward which our economy so much needs. With the present position in regard to American aid, and with the present burdens we are carrying, I can assure hon. Members that, provided we can balance our Budget, the main need is to lighten the load upon our adventurous industrialists and to give them the opportunity to compete.
We are up against a very difficult time with the new competition from Japan, Germany and elsewhere. We have managed to produce a better balance of payments situation, but it is no good saying we are yet out of our difficulties. A great national effort is needed. One thing which has encouraged me is the spirit in which this Finance Bill has been discussed. If we discuss these problems in that spirit, we can go ahead to make things even better than they are at present, and save ourselves by our own endeavours.

Mr. Strachey: The Chancellor has used an argument in his reply which I do not think the Committee should let pass. He has taunted hon. Members on this side of the Committee with dragging in the class war—[HON. MEMBERS: "Hear, hear."]—and that remark of his is supported.
Let me recall to the Committee what has actually happened by that series of taxation changes last year. Whatever the motives —and we need not describe them —the net effect of these changes, as several of my right hon. and hon. Friends have conclusively shown, was the counter-redistribution of the national income. A certain amount of the real net income of poorer sections of the community was transferred to the richer sections by the

adjustment of the Profits Tax, by the adjustment of food subsidies and the like.
It may be, and it is argued by hon. Gentlemen opposite, that that was the right thing to do. That was what was done and this tax, the abolition of which we are discussing, covered that to some extent. Again, whatever may have been the possible motives for that procedure, that was what was done. When we on this side of the Committee point this out, when we point out the simple arithmetic of the matter, we are accused of dragging class war into the argument.
The difference between the two sides of the Committee is simple. We on this side may sometimes talk about the class war, but hon. Members on that side of the Committee do not talk about it— they wage it. They are very wise in their generation. The quietly go on increasing their own incomes at the expense of the mass of the population; and when attention is called to it, that, of course, is an outrage; that is dragging in this dreadful class war.
That will not deter us for one moment from pointing out what is being done. This quiet counter-redistribution of the national income—which had in a small way been redistributed for the first time in the history of this country against the incomes of the rich to the incomes of the poorer sections of the community—is being done slowly, quietly and very discreetly. I can understand the dislike of hon. Members opposite when these facts are pointed out. This tax, which was imposed last year, had the other effect. The net balance—even when the tax was in existence—of all the provisions of last year's Budget was to do that. When this tax is removed, the counter-redistribution is very much more substantial.
The Committee is, therefore, in a real difficulty to know what to do and which way to vote on this Clause. Although this measure in itself was redistributory, it was of such a complex, clumsy, and undesirable character that one really can hardly mourn its passing. My hon. Friend the Member for Gloucestershire, South (Mr. Crosland) showed some of its complications and the Chancellor, in replying to the debate, merely underlined what those complications were.
Therefore, it is almost impossible for us on this side of the Committee to


oppose its demise. This is not the proper way to redistribute the national income. A simple Profits Tax is an incomparably better way. The justification for this tax was defence expenditure. Is it suggested that defence expenditure is now less?

Mr. R. A. Butler: The difference is that we thought that defence expenditure would be a short, sharp burst and it has now come to a long-drawn-out haul. That is the main difference.

Mr. Strachey: That is an argument which I could take up. The fact remains that the level of defence expenditure which it was said last year necessitated the imposition of this discriminatory, complicated and almost unworkable tax is higher this year than it was last year. The fact that that special high level of defence expenditure is now expected to continue longer than was anticipated would be an argument for retaining the tax.
The net effect left on the mind of the Committee must be what is unquestionably a fact—that this was a political tax. This was a tax put on for its supposed political effect, and the Chancellor is undoubtedly right from his point of view to get rid of it when he thinks that it has served its purpose in that respect. It is a bad tax. It is discriminatory in the wrong way. One cannot discriminate in this way. Therefore, in spite of the broader considerations on the distribution of the national income which I have mentioned, I do not see how we on this side of the Committee can mourn its passing.

Question put, and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 26.—(IRON AND STEEL COMPANIES (PROFITS TAX AND EXCESS PROFITS LEVY).)

Mr. Boyd-Carpenter: I beg to move, in page 28, line 19. to leave out from "means," to the first "and," in line 23, and to insert:
the Iron and Steel Holding and Realisation Agency set up by the Iron and Steel Act, 1953.
This Amendment, like the next one, is, in substance, of a drafting character. When the Bill was drafted, the Iron and Steel Bill was a Bill; it is now an Act.

Amendment agreed to.

Further Amendment made: In page 28, line 25, leave out "as aforesaid," and add "under that Act."—[Mr. Boyd-Carpenter.]

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Mr. Albu: This is a most important Clause and I hope that we shall have a full explanation of its purposes. As I understand it, the object of the three main parts of the provision is to enable the Iron and Steel Holding and Realisation Agency to do certain things which would otherwise be illegal, so that they may be able to alter the capital structure of the companies and thus dispose of the companies better than they would otherwise be able to do.
It is extremely difficult for those who are not accountants, or even lawyers, to follow the exact details of what is proposed. However, I have endeavoured to do so. I have consulted friends and, as far as I can see, subsection (1, a) enables a company still within the ownership of the Agency to make a distribution in the form of dividends either to the Agency or to another company within the Agency without becoming subject to the normal Profits Tax at the distributed Profits Tax rate.
Before we discuss the merits of that, I should like to know whether that was really necessary. Is not it a fact that the companies are in fact subsidiaries of the Agency as long as the whole of the shares are owned by the Agency? Therefore, under Section 38 of the 1947 Act, it is possible for them to do this already or at least to elect to do it. If that is not so, I take it that this has been introduced for the purpose of making an exception here.
Subsection (1, b) gives the companies a concession on the late lamented E.P.L. provisions of last year's Act so that a dividend can be treated as a capital payment or a capital receipt, according to who receives it, so increasing or decreasing the standard rate of profits by 12 per cent. And it seems that Clause 26 (2) deals with the Clause introduced into the Bill of 1951 to prevent the evasion of Profits Tax by the issue of redeemable preference shares instead of the distribution of profits and permits this to be done without payment of tax if certified by the Treasury as necessary for the purposes of the Agency.
8.30 p.m.
The "Economist" of 16th May fortifies my belief that I was right, for, speaking of the Clause, it points out that it would be a very important advantage to the Agency in disposing of the shares. Before we can possibly agree to the passing of this Clause, we want to know what the effect will be. It looks to me, at any rate, as if the total effect must be a loss of revenue in the first stage to the Treasury. It is perfectly true that, as a result of immediate loss of tax revenue, it may be possible to pay higher dividends, or to make an alteration in the capital structure of the companies, by the issue of redeemable preference shares in such a way that a higher price will be obtained for the companies as a whole.
Certainly, we on this side of the Committee are most insistent that the price obtained for the companies shall be the highest possible, if they are to be sold at all, and certainly not less than that at which they were originally taken over. But in the interim, of course, certain things have happened which have been no doubt the reason why the Chancellor is introducing this Clause. One of the things that has happened is that the yield on ordinary shares has gone up as a result of the Government's financial and credit policy and therefore, presumably in order to obtain the price which the Government want for the shares, the Government must be able to show that the companies have been in the habit of paying a higher rate of dividend.
It may be argued, and no doubt will be argued by some hon. Members opposite, that if the companies ever are sold, or an attempt is made to sell them, the people who will buy them, whoever they may be, will not so much look at the rate of dividend paid in the last year as at the value of the assets of the company which are disclosed in their accounts, and that therefore the price is much more dependent upon the value of the assets and the profits made on those assets, which are also published, than it is on the rate of dividend which had been paid.
This argument overlooks the fact that the larger companies, the ones which rumour has it will be first sold off, are likely to pass into the hands mainly of large, institutional investors, and nobody

quite knows what those people will do. After all, the value of the company to the ordinary shareholder is purely the value of the dividend which he receives, because if a quantity of shares is issued publicly to a very large number of people that large number of people will have no influence whatsoever on the rate of dividend paid, and the value of the assets is of no concern to them whatever. The question of the dividend to be paid will be one for the people who happened to put in the greatest amount of money and were originally the board of directors.
Therefore, there is an attempt here to establish in the minds of the investing public a tradition of a higher rate of yield on these shares than the rate of interest which has been paid so far on the Iron and Steel Corporation stock. I imagine that that is the reason for Clause 26 (1, b). On the whole, I think that we shall have to have a very full explanation of what looks to us like financial wangling to try to overcome the difficulties into which the Government have got themselves by de-nationalising the iron and steel industry and attempting to sell the companies back to private hands.
One thing that seems to be quite clear is that even if the price finally obtained for companies is as high as it was previously, the result will be that in the end a very much higher yield or return will be given to people who own those shares than would have been necessary to pay the people who own iron and steel stock, and the burden on the industry is going to be higher. If that is not the effect of this Clause, I do not know what is.
Subsection (2) may not have quite the same effect, but it will mean a loss of revenue to the Treasury and will certainly render companies more easy to sell. That is not an object of which hon. Members on this side are particularly in favour. The most dangerous and possibly dishonest part of this Clause, however, is subsection (1)—particularly subsection (1. a).

Mr. Mitchison: If I repeat a little of what has been said by my hon. Friend the Member for Edmonton (Mr. Albu) I hope that the Financial Secretary will excuse me. It is rather difficult not to do so. When I first saw this Clause I read it very carefully, and then I re-read it,


and I am bound to tell the Financial Secretary that I have become increasingly suspicious of it. In the last Clause we finished what the soldiers, in their witty way, would call "Operation Infanticide," but we are still having to deal with the ghost of the infant Excess Profits Levy and also with Profits Tax.
Here—and I am picking my words carefully—we are dealing with iron and steel shares, which are at present public property and which, by and large, have made exceedingly good profits during the last year under public ownership. They are now going to be sold back to private enterprise in pursuance of an Act of this Parliament. The companies concerned are apparently rather short of liquid capital.
That is the general effect of the Iron and Steel Corporation report and accounts, which have just been published. The profits have been doubled and liquid reserves are obviously small in comparison with the assets of the companies. They appear in the balance sheet as a considerably smaller item than the nominal capital or the book value— whichever one likes to take—of the companies concerned. It is not at all surprising, as the Corporation themselves indicate that more liquid capital will be required, and it is in the light of that consideration that we must look at this Clause.
I start with one principle, and I hope I shall get the Financial Secretary, with all his rectitude and judgment, to agree with me about it. We should not use taxation—particularly special taxation— in order to facilitate the public duty of the Realisation Agency if by so doing we sacrifice revenue. That is the first proposition, and I hope that it will be accepted, because I should have thought it grossly improper to levy taxes and then apply the proceeds of those taxes to effect what is, after all, a political party purpose approved by Parliament—the de-nationalisation of the iron and steel industry. I should regard that as an entirely wrong use of the power of taxation.
Looking at the Clause from that angle, the first thing I discover is that if an iron and steel company entirely owned by the Realisation Agency—I shall not go into the case of further subsidiary

companies because for the principle of the matter that is not necessary—make a distribution which, in this case, would go to the Realisation Agency itself, then, if I read the Clause correctly, in respect of that distribution there shall be no Profits Tax. That amounts to 20 per cent. These are really obscure matters which are difficult to follow, and I hope the Financial Secretary will not take some of my comments, if they are at all sharp, as an excuse for not answering the case. Paragraph (b) seems to me to make a counter concession but the counter concession applies only, as regards this distribution—I hope I am right—to 30 per cent. of 12 per cent. of the distribution; and I make that 3 or 4 per cent.
It seems to me, therefore, that the effect of the subsection and the whole tenor of the Clause is to give a special benefit as regards this distribution when made by a wholly owned subsidiary to the Agency itself. It is a special benefit because in fact it exempts from Profits Tax to a greater degree than any benefit which could be drawn from the dying child, Excess Profits Levy. If that is true I shall have some comments to make. If not, why are these arrangements made? We were told in the earlier debate that it was to facilitate the task of the Realisation Agency, but I fail to see what purpose they serve in that connection.
I come to another point. If they are encouraging distribution, do we want that at the moment? The agency has to sell these iron and steel shares, whatever we think of the rights or wrongs of the obligation, in the terms of the Iron and Steel Act, and for that purpose certain things have to be considered under Section 19 (6) of the Iron and Steel Act.
All "material factors" have to be taken into account
including the physical assets, capital structure, reserves and trading aspects of the company in question, and the monetary and market conditions prevailing at the time of sale.
That is from the seller's point of view, but the next question is, what effect will it have on the buyer if peculiar fiscal arrangements are used as a means of facilitating the Agency's task?
Whether or not my interpretation is right—and I may be wrong—it seems to agree with what was said by my hon. Friend the Member for Edmonton. It


is obvious that the effect will be to mislead the buyer to some extent—and when I say mislead the buyer I mean that unless he goes into detail about these exceedingly complicated and difficult financial matters, he will not realise that from the very time when the goods are, as it were, in the shop window, in order to facilitate their sale and to market the contents of the shop window more readily, some peculiar financial and fiscal provisions have been inserted. I may be wrong. I may be deemed too suspicious. I should be only too glad to know I am. But why any special fiscal provision at all?
8.45 p.m.
Let me follow this chase a little bit further. The next point is the question of the issue of redeemable preference shares. This really puzzles me. If I have got it right, here again a special fiscal benefit is to be conferred, because in certain circumstances an issue of redeemable preference shares which otherwise would attract tax as a distribution is not to be treated as a distribution, and the question is, why? It is perfectly obvious that the Agency—and it seems hardly necessary for the statute itself to say so—has the power, as set out quite clearly in Section 19 (2):
While any securities of a company are held by the Agency, they shall have all such rights and may exercise all such powers in relation to the company as are by law vested in or exercisable by the holders of such securities, and in particular, without prejudice to the generality of this provision, the Agency may exercise their powers as a holding company for the purpose of procuring—
(a) any reorganisation or alteration of the share or loan capital of any subsidiary of the Agency, including the cancellation of securities and the issue of new securities …
I should have thought that was enough for all practical and reasonable purposes, and I really do not see why what appears to be this special encouragement should be given in this special case. I have looked through the list, and it is not because there are not already redeemable preference shares in some of these companies. They already exist, and quite a lot of other preference shares. I can quite understand the Agency having to exercise that sort of power, but why, unless I have misunderstood the purpose of the Clause, is there to be a special fiscal concession when they form an issue? I absolutely fail to understand the reason.
It is perfectly true that the whole of this is to be conditional. Conditional on what? It is conditional upon the Treasury certifying that the issue of redeemable shares is made for the purpose of facilitating the performance by the Realisation Agency of its function in returning any undertaking or property to private ownership. That is the safeguard in subsection (4), for what appears to be an advantage at any rate in most cases. I have not overlooked the fact that the following subsection obviously contemplates cases in which it may not be an advantage, but it clearly in most cases tends to be an advantage, and so far as that is concerned the only thing the Treasury has got to see is not that this is right, not that this means sacrificing revenue. Where has the watch dog of our finances got to now? All the Treasury has got to certify is that it is for the purpose of this particular political duty conferred by an Act of Parliament.
Really, we have been hearing something today about the constitutional position. I should have thought that in cases of this sort the duty of the Treasury, the primary and obvious duty of the Treasury, was to see that tax revenue was not sacrificed in order to effect a purpose which savours strongly of the political. It ought not to be put in the position merely to say, "You can certify any of these things if they facilitate the passing of the Agency," or to be put in a position where it could not possibly carry on what may be its conflicting function of being the watch-dog of the revenue and to that extent the watch-dog of the taxpayer.
I hope I am not being too suspicious. I can only assure the Financial Secretary it is a complicated Clause that has already aroused the suspicions of many other people in and out of this Committee, and I hope he is going to say this involves no sacrifice of revenue at all; that these financial arrangements are something which have no connection whatever with the rather peculiar position of this body. I fail to see how we can say that, since it appears to be the thing the Treasury have decided. I hope he will at least say that, whatever they have attempted to do in this Clause, they did not really contemplate sacrificing revenue for a political purpose, and that on reconsideration they do not ask the country to do a thing like that.

Mr. Jack Jones: I rise to make a few inquiries about what this Clause sets out to do. I have read it and re-read it with interest, but I am still a little puzzled. As the Committee know, I am not a lawyer, an economist or, indeed, a financier, and when lawyers, economists and financiers say they are puzzled by this Clause, nobody will expect the ordinary back-bench steel-worker to say other than that he, too, is puzzled.
As I see it, this Clause is designed to do one thing, namely, to help the political party opposite to get the country to believe their policy is the correct one, so that they can reasonably easily do what they set out to do in returning to private enterprise the great steel industry, of which we have yet another report showing real progress, and property accruing to the country at large.
If this Clause set out to give benefits to those companies remaining with the Agency, I could understand it, because logically the companies which it will be less easy to sell will be those which are less efficient. That is not political nous; it is just ordinary, commonsense logic. But what do we find? We find the exact opposite. We find that those companies can receive financial benefit on condition that they satisfy the Treasury that they are being returned to private enterprise. In other words, it is a financial inducement, at the expense of the country at large, to persuade people to put into operation the Tory policy of denationalisation.
I think I can fairly claim to have listened to or read everything said in the House on nationalisation and denationalisation, and I have attempted, very humbly, to take part in those proceedings. I was always led to believe by the party opposite when they were in opposition that the industry was to be returned to private ownership because under nationalisation it had lost its incentive and morale, that production had suffered, that the quality of its products had deteriorated, that the workpeople were dissatisfied and there was general chaos; and that immediately the industry was denationalised there would be financiers waiting to take it over.
That is not true. We know that it will be possible to sell certain parts of the industry reasonably soon; it will probably be reasonably easy to float on the

market one or two of the larger corporations for return to private ownership. What I want to know is, assuming there is to be a financial benefit accruing to those companies which for some time remain in the ownership of the Agency, at what date the benefit begins to accrue? When does this Clause operate from?
Apparently there is to be a financial benefit, about which we shall probably know more when the Government reply. If there is to be that financial benefit, in my opinion there will be less incentive to buy companies; in other words, potential buyers will hold off, waiting for this Clause to come into operation, at which date they will get this financial benefit. This financial benefit can be obtained only at the expense of the Revenue, and therefore there will be no benefit to the country at large. In other words, they will hold off to get a valuable industry sold to them at less price than ought to be the case. It will be interesting to learn from the Financial Secretary, who, I assume, is to reply, when this particular date operates.
As I have said, if this had been a Clause to help those companies remaining with the Agency to put themselves into a state of efficiency so as to make them a good potential buying proposition, I could have understood it, because they are the people who will need benefit first and most. On this side of the Committee we have argued that the industry in its entirety will not be sold. There are certain parts of the industry which some of us know better than the Members on the Government Front Bench, and we know that they will not be sold at all. They will probably be declared redundant as the months and years roll by.
I want the Government to come clean on this matter, and to let the country know exactly what is the intention of this Clause, because we are reasonably suspicious about its intention, as we have every right to be. We would like the Government to tell us exactly when this Clause is to become operative and what will be the extent, if it can be computed, of the revenue loss which the country will suffer because of the introduction and working out of this Clause.
There are other Amendments which, I understand, will be called and about which we shall have certain questions to ask. The primary question which I seek


to ask is whether this Clause will delay the selling of the industry to private enterprise, and if so, to what extent will the Revenue and the country suffer?

Mr. Mulley: I do not propose to debate again the issue of whether it is a good or a bad thing that the steel industry is to be denationalised. That is a matter of difference between us, but I think that what Members on both sides of the Committee should have in mind, as custodians of the taxpayer, is whether the issue which is proposed in this Clause is fair to them and is fair to other industries in comparison with the Realisation Agency and the denationalised section of the steel industry. Although we have the advice of learned counsel, we are still in some difficulty to know what is the actual purport and intention of the Clause. I hope that the Financial Secretary will make that quite clear, in his usual cogent way, when he comes to reply, as I hope he soon will.
It appears from what one can gather, in a very amateur way, from the Clause and from the enlightenment which we have already received from my hon. Friends on this side of the Committee, that there are some very grave doubts about the rightness or fairness of this Clause. I would have been much more sympathetic to the Clause if we had not already had a number of days' debate on the Finance Bill already, because we have had the principle of non-discrimination thrust down our throats from the Treasury Bench on the issues of initial allowances and Purchase Tax. We have been told that even in the national interest the Government cannot make any form of discrimination, and yet, although the national interest, apparently, will not prevail, the interest of the Tory Party can prevail, and we have a special Clause in the Bill to facilitate, in the words of the Clause,
the performance by the Realisation Agency of its functions in returning any undertaking or property to private ownership.
9.0 p.m.
The economic strength of the country, ably described in the concluding sentences of the Chancellor's last speech to the Committee, is ignored, but private interests involved in returning industry to private ownership are not only given a place in the Bill but are also written into

the terms of the Bill. That is very unreasonable discrimination. Other excellent cases of discrimination in the interest of the country's economy have been turned down. It may well be that that was the reason why we were not even allowed to write "in the national interest" as one of the functions of the Iron and Steel Board. It may be that I have misinterpreted the Clause, and I hope the Financial Secretary will direct his remarks to this matter. I hope, Mr. Hopkin Morris, that you know what the Clause is about because I do not know how far I am in order owing to my doubts as to the actual contents of the Clause.
This seems to me to be an instance of giving a taxation advantage to a denationalised industry. We created an economic advantage for the nationalised industries that we set up, but we never attempted to twist the law of the land or taxation in their favour. I was surprised to learn that the Overseas Section of the British Broadcasting Corporation has to pay Income Tax——

The Deputy-Chairman: Reference to the British Broadcasting Corporation cannot be in order in this debate.

Mr. Mulley: If we cannot refer to something which is not in the Clause in order to provide an analogy, we are in a difficult position through our inability to compare one taxpayer with another.

The Deputy-Chairman: The Clause does not discuss what the British Broadcasting Corporation does.

Mr. Mulley: I was only referring to the British Broadcasting Corporation as a taxpayer, and a taxpayer who obviously has an interest in the Clause.

The Deputy-Chairman: There are varieties of taxpayers, but they do not come within the Clause.

Mr. Mulley: I shall not pursue that point, Mr. Hopkin Morris. I wish to make the general point that the iron and steel industry, another nationalised industry of the same category as that to which I have been referring, has been subject to the Profits Tax, Income Tax and all the other taxes in the same way as any private industry, and in that respect it has been completely competitive. Reading


the Clause, it seems that the purpose of having the Clause in the Bill is to put the Realisation Agency in some special preferential position for a political purpose, in the words of the Clause,
…of facilitating … its functions in returning any undertaking or property to private ownership.
An Act has been passed to return the industry to private ownership, and while we disagree with the decision, we should expect the Government to implement it, but we should not expect them to implement it by giving that body any preferential treatment in terms of tax as against other bodies who would have equal claim in the national interest for preferential provisions so that they could more easily achieve their objectives. What is the reason for this discrimination, this introduction of a new principle in taxation, contained in the Finance Bill? I hope the Financial Secretary will be able to satisfy us on the point.

Mr. Boyd-Carpenter: I agree with the hon. Member for Sheffield, Park (Mr. Mulley) that on this Amendment we should not—you would not permit us to do so, Mr. Hopkin Morris—discuss high or low whether it is a good thing to denationalise steel. What we have to do is, taking that accomplished fact as an accomplished fact, to decide whether in those circumstances the taxation provisions of the Clause are fair and sensible. That is the issue posed by the Clause.
I sympathise a good deal with the hon. Member for Edmonton (Mr. Albu) and the hon. and learned Member for Kettering (Mr. Mitchison) in the difficulties which they encountered when they first saw the Clause. It is a complex one, but I am bound to add also in fairness that I know of no two Members of this Committee whom I should least expect to find in difficulty in construing any Clause in any Bill, however complex. I am glad to see that on that proposition, at any rate, I carry the hon. and learned Gentleman the Member for Kettering with me.
In order to understand the purpose of this Clause, I should say broadly at this stage how it is intended to operate. First of all, I should like to make clear that it only relates, as the express terms

of the Clause make clear, to companies wholly owned by the Agency, that is to say, in the ultimate resort by the State. I do not think, therefore, that we need share the distress of the hon. Member for Rotherham (Mr. Jack Jones) that the Treasury watchdog is, as he described it, off form in this respect. We are dealing with assets, money and property which are already completely in the ownership of the State, and I can assure the hon. Member that though the Treasury watchdog, like other watchdogs, may occasionally fall into a doze, this is not one of those occasions.
Secondly—and perhaps this is most important from the point of view of the issues raised in this debate—hon. Members will see from the terms of subsections (2) and (3) that the tax adjustments under this Clause are intended to apply only in the case of distributions which are made for the purpose of the disposal of the companies. In other words, they would not apply to ordinary dividend distributions. But hon. Members who, as I did, sat through the financial Clauses of the Iron and Steel Bill, will recall that there was great emphasis, perhaps even more from the other side of the Committee than from this side, on the need for the regrouping and rearrangement of the structures, financial and otherwise, of the companies before sale.

Mr. Mulley: I, too, sat through the whole of the debates, but I do not remember anyone on this side of the Committee suggesting that. What we suggested was that it would be done as a financial trick to sell the companies, and this is bearing out what we then said.

Mr. Boyd-Carpenter: I cannot vouch for the hon. Member, but I know that some of those with greater experience of that industry, such as the hon. Member for Rotherham, were much concerned with the structure and the reorganisation of the industry, as is anyone who knows anything about this industry.
Part of the way in which the finances of that reorganisation and reconstruction may have to be effected will be the making of distributions in one form or another, such as in the form, as I think the hon. Member for Edmonton (Mr. Albu) mentioned, of redeemable preference shares or possibly in the form


of bonus shares in order to get the financial structure of the companies in preparation for sale into an appropriate form.
Under the ordinary tax law as it now stands, if the distributions are made in any of those ways they would attract the distributed rate of Profits Tax at 22½ per cent. or the undistributed rate of 2½ per cent. It seems to us wrong that in a reorganisation, which is in the interests of the sale and efficiency of the industry and, of course, in the interest of the taxpayer, we should not get a good price. There I agree with the hon. Member for Edmonton that we have every intention and desire to get as good a price as possible— with due regard to the interests of the industry, I hasten to add for the benefit of the hon. Member for Rotherham.
It seems to us quite wrong that these distributions, which are not distributions in the ordinary sense of company profits but are distributions for the purposes of selling the firms at a reasonable price, should attract a high rate of Profits Tax at the point of distribution. One of two things would happen——

Mr. Mitchison: I am sure it was a slip of the tongue, but the hon. Gentleman said that they might be made for the purpose of facilitating the sale. That is the very matter that the Treasury has to certify. He then slipped in a reference to the efficiency of the industry, which does not arise on this. The Treasury has to certify that they are for the purpose of sale, but there is not a word about the efficiency of the industry.

Mr. Boyd-Carpenter: But the hon. and learned Gentleman appreciates that the sale of a company in an efficient form is obviously in the interest of getting a good price, and it is a proper reference. The consideration, of course, is for the purpose of sale, and the sale of a good going concern is surely the best form of sale, both from the point of view of the industry and of the taxpayer who will receive the sale price. I do not think there is any real difference between us about that.
The issue with which we were faced was that such distributions for the purpose of reorganisation on sale would, under the ordinary law, in many cases attract the distributed rate of Profits Tax. Either one of two things would happen. In some cases that fact would perhaps

make it seem undesirable to effect the reorganisation and therefore the taxpayer, as the ultimate recipient of the proceeds of sale, would be the loser. Alternatively, the tax would be paid, which would be an additional burden that would not normally have been imposed. Therefore the taxpayer again would undoubtedly be the loser, because a company from which the assets had been drained to pay this extraordinary rate of tax would normally command a lower price. The conclusion to which we came under both those heads was that in the interest of obtaining a reasonable sale price it was better to secure that extraordinary distributions made in the process of reorganisation should not be made to attract the distributed rate of Profits Tax.
That is the simple explanation, which I agree is perhaps not so easy as it might be to read into the necessarily complex language in which the Clause is clothed. There is certainly no question here, as one or two hon. Members seemed to suggest, of some peculiar and special advantage being given to private individuals or organisations. The question is the purely practical one, in the interest of the national Exchequer, as to whether we are the more likely to get a proper price on the sale of the companies if the reorganisation is hindered by the liability to tax being attracted in the course of that reorganisation or not. Having given considerable thought to this matter, we came to the conclusion that the wisest thing to do was to come to this Committee and ask hon. Members by this Clause to exempt from the distributed rate of tax the distributions made in this way and in this way only.
The hon. Member for Sheffield, Park seemed to think that legislation of this kind was unprecedented, and he indicated that when the party opposite were nationalising industries, they made no alterations in the ordinary operation of the tax law. That is not the case. The Finance Act of 1947 provided that in the case of all the nationalised industries the undistributed rate, the lowest rate, should apply to what would otherwise be deemed to be distributions. We are not going so far. They, in respect of industries wholly in public ownership, applied the undistributed rate to all distributions. We are seeking to apply it by this Clause not to the normal distributions, which


will continue to attract the distributed rate, but only to the special distributions made for the purpose of securing the reorganisation for disposal.

Mr. Albu: Surely it is a different situation. The only distributions made by a nationalised industry are those of fixed-interest stock, Government stocks, which in the case of a private industry would not class as distribution since they are not even preference shares.

9.15 p.m.

Mr. Boyd-Carpenter: The hon. Member is, of course, quite wrong. He has completely forgotten Cable and Wireless, Ltd., which was included. If he studies the position he will find that the analogy is perfectly correct.

Mr. Mulley: Will the hon. Gentleman give way?

Mr. Boyd-Carpenter: I am sorry; I have just given way, and I am coming to a conclusion.
Therefore, I suggest that in this process we are being more moderate than were our predecessors. I will not seek to reecho the Indian pro-consul who was astonished at his own moderation, because I think this is a reasonable proposal. It is a reasonable one because we accept the view, expressed during this debate as well as previously from the benches opposite, that in conducting this operation, on which Parliament has, after all, now decided, it is our duty to try to secure for this valuable piece of the taxpayers' property a proper price on disposal. In our operation we shall be assisted in obtaining that proper price by the proposals embodied in the Clause.

Mr. G. R. Strauss: The Financial Secretary has given certain explanations about the Clause. He will appreciate that this is the first time since the Budget was introduced that we have had any explanation whatsoever justifying its provisions. As they stand, they cause us considerable alarm and suspicion. That alarm and suspicion have been expressed by my hon. Friends who have spoken before me. Although the Financial Secretary has helped to some extent in making us understand the purpose of the Clause, we are not at the moment fully satisfied that it is justified.
As I understand it, the purpose of the Clause is to exempt from taxation distributions of capital deemed necessary by the Holding and Realisation Agency in carrying out their duty of reorganising the companies which they hold for the purposes of public sale. We all want to ensure that there shall be the minimum loss, or, if possible, no loss, on the revenue when these companies are sold. What we want to be quite sure about is that nothing improper is done for the purpose of misleading potential investors, or that nothing at all unfair is done, in the process of reorganisation by tax exemption to which this Committee should take exception.
The first question I should like to ask the Financial Secretary is this. Where the Clause talks about distribution, is that distribution completely confined to distribution of capital for the sale of these companies, such as distribution of bonus shares, redeemable preference shares, or something of that sort? Is the sole purpose of the Clause to ensure that if a reorganisation in the structure takes place and different types of shares—bonus shares or redeemable preference shares-are issued from those which now exist, which to a large extent are only ordinary shares, that distribution, or their receipt by some other company, will not be subject to the taxation which is provided by existing legislation?
It is very important if we are told that the purpose of the Clause is to confine these special tax exemptions to distribution of capital, because, as the Clause reads, there is no such limitation. We had to assume that dividends were in the minds of the Government, because there is nothing to suggest otherwise, and when one talks about distribution by a company one naturally thinks of dividends.
We had in mind that the Government thought there should be some distribution of dividends by these companies—internal distribution in the hands of the Agency—and we could not understand what it was about. It may be to give a better impression to potential buyers of the value of the company. If that is so, it is wholly wrong and, we would have thought, unacceptable to hon. Members on all sides of the Committee. But if there is no reference meant at all to the distribution of profits in dividends, but solely distribution in


respect of capital for the sake of reorganisation, that is an explanation which —if it does not satisfy us—relieves our minds in one respect.
Therefore, I ask the hon. Gentleman to give a categorical reply to the question of whether distribution is confined to distribution of capital and has no reference whatever to distribution of profit from one company to the other, those companies being, of course, in the hands of the Agency. If he is not referring to distribution of profit it seems to me, although I listened to his explanation as carefully as I could, that the provisions in subsection (1, a) are not relevant. But I think I will leave that until I get the answer from the Financial Secretary on the major point I have in mind.
I think it would help the general discussion if we could have an answer to the cardinal question of whether distribution does not concern profits and dividends but only concerns capital for the reorganisation of the capital structure of the company. If the hon. Gentleman can give a reply now that will facilitate the debate.

Mr. Boyd-Carpenter: If the right hon. Member wishes I am glad to oblige. I did deal with this aspect of the matter, which I think is important, at some length, and I will re-state what I said then. I distingushed between what one might call normal distributions—the ordinary distributions of profits earned, which to a greater or lesser degree the boards of companies decided upon in the light of their annual accounts—and abnormal distributions which are part of a system of financial reorganisation.
Because I do not want to mislead the Committee, I prefer not to use the word "capital" as opposed to its normal converse of revenue. I prefer to use the distinction, normal and abnormal for very obvious reasons that certain payments are sometimes thought by some people to be of a capital nature and some of a revenue nature. There are hon. Members who make a very good living arguing precisely those points in a different place from this. It is the intention, to use this provision where it is necessary to reconstruct the financial structure, where it is necessary to facilitate a new issue of shares, where it is necessary to secure the transfer of a block of shares from a subsidiary company or from the company to

the market—the right hon. Member can envisage half a dozen cases in which the mechanics would require such a change. That is the answer to the question.
It is certainly not intended to use this provision in order to produce dividends paid by the companies in order to mislead potential purchasers. Neither this Government nor any British Government would descend to such a subterfuge which, if attempted by an individual, would lead to the Old Bailey. There would be nothing more foolish because the sale of these securities is to be undertaken publicly in the full light of public knowledge. It would be quite impossible to mislead the people concerned in these transactions by so manifestly foolish as well as dishonest a course.
As the point was raised, I thought it necessary to make it perfectly clear and to repeat that the whole purpose of this is to make possible, without attracting the distributed rate of tax—with all the consequences to which I have referred— a reconstruction which will facilitate sale.

Mr. John Freeman: Like many hon. Members, I find it extraordinarily difficult to follow in detail the purpose of this Clause, even after the helpful explanation of the Financial Secretary. Most of my education, such as it was, was concerned with events prior to A.D. 100, which does not help in dealing with matters of this kind.
A few moments ago the Financial Secretary used arguments directed to the steel industry rather than to the contents of this Clause which left me with a serious doubt in my mind. He will allow me to say that, although he was a diligent attendant during the discussion on the financial Clauses of the Iron and Steel Act, he was not in his place quite so regularly during the discussions on the earlier Clauses.
The hon. Gentleman sought to justify some of the purposes of this Clause by reference to the opinion which he alleged was expressed by hon. Members on this side of the Committee about the desirability of regrouping companies. I believe, unless I misunderstood him—in which case I will withdraw—that he has attributed to hon. Members on this side of the Committee views which we never expressed and indeed which we strongly deprecate.
Surely he will accept that the whole tenor of the argument about that on the Iron and Steel Bill was that a rearrangement of these companies must take place for one of two reasons, either because it was held to be in the interest of the efficient management of the industry and therefore to the public interest that there should be a regrouping, or—and this is where we on this side of the Committee expressed strong suspicion—it might be desirable to the Government or to the Agency to regroup companies against the public interest and against the real welfare of the industry specifically for the purpose of making a sale, but which might none the less be damaging to the good management of the industry.
Whether or not the Financial Secretary agrees with that point, I think he will agree that there is a point of real distinction. When he was asked just now to justify the Clause, he based his argument on the desirability—with which he alleged we agreed—of the rearrangement of companies and the anxiety felt by the Government not to distract or hinder that in any way. But surely that argument depends entirely—at any rate for our support—on his not having confused the two types of rearrangement which may be possible.
I would direct his attention to subsection (3) of this Clause which states specifically and exactly in what circumstances the Treasury may issue a certificate under this Clause. They may certify under this section only when the distribution is being made for,
the purpose of facilitating the performance by the Realisation Agency of its functions in returning any undertaking or property to private ownership.
Unless I am mistaken, that is a very narrow definition. There may be cases in which it is not impossible for the Treasury to issue a certificate where the rearrangement is wholly in the interests of good management of the industry and not directly for the purpose of making a sale.
I hope the argument I am putting holds water and that, whatever may have been the general merit of his argument, the Financial Secretary will recognise that there is here a profound distinction. If my right hon. Friends on the Front Bench consider that his general explanation of this Clause has been reasonably

satisfactory, I still hope he will explain to me where what I may call the industrial argument is at fault. If he cannot do that, I hope that he will seriously consider between now and a later stage adding to subsection (3) words which would make it possible for the Treasury to give its certificate where a regrouping or rearrangement was being made with the approval of the Iron and Steel Board for the sole purpose of the good management of the industry and public well-being, and not specifically for the purpose of making a sale or returning a company to private ownership.

9.30 p.m.

Mr. G. R. Strauss: If the Financial Secretary replies to the questions asked by my hon. Friend the Member for Watford (Mr. J. Freeman), I should like him to answer another question which still gives me some anxiety. It is one on which further clarity is necessary. He told us—this was important and new— that these distributions which he had in mind were for the purpose of the capital reorganisation of companies. I find it difficult to understand how any distribution of that sort could attract distributed Profits Tax unless it were some distribution of ordinary profits or dividends in the normal course of business. That is the sort of distribution which we think should not be exempt from Profits Tax.
Perhaps the hon. Gentleman will be able to give an illustration where a distribution for the purpose of capital reorganisation might attract distributed Profits Tax but for the special provision of this Clause. I should be most grateful if he could do that.

Mr. Boyd-Carpenter: I hesitated before rising to my feet in case any other hon. Member wished to take part in the debate. It is probably inconvenient and tedious for the Committee if I intervene too frequently. Naturally, I am only too anxious to deal with any point which any right hon. or hon. Member may wish to discuss. The hon. Member for Watford (Mr. J. Freeman) asked two questions. The hon. Gentleman is perfectly correct in his construction of subsection (3), but I think that he will recall that in arrangements made for the purposes of facilitating sale it is clear that the reorganisation, if attractiveness of sale is considered, may well in many


cases involve changes which, looked at from the other point of view of efficiency, would also arise. If one is buying something one is more attracted to buying an efficient set-up than an inefficient one.
The hon. Gentleman asked me whether I would consider carrying further the provisions of this Clause by widening subsection (3). That is something of a reversal of the criticisms so far. It is the exact opposite of the argument directed from the benches opposite. I hesitate to give any such assurance. It is one thing to arrange for an alteration of what would be the normal tax law of the country when one is concerned with the direct interests of the Revenue in the sense that what we forgo in tax we believe we shall—at least and probably more—gain in sales. That is a pure matter of judgment as to how one effects the sales. If one goes further and suggests that, because one approves of a reorganisation, tax concession should be made, then one gets into very complicated issues indeed in which I think other industries which are not going through this process of denationalisation might have something to say.
The hon. Member for Watford was at the Ministry of Supply and, of course, I and my right hon. Friend would take note of anything he had to say on this subject; but I would not like to mislead him by suggesting that I feel that there is anything to be followed up in that direction. The right hon. Gentleman the Member for Vauxhall (Mr. G. R. Strauss) raised a further point which I am bound to say has for the moment escaped that fallible instrument, my memory.

Mr. G. R. Strauss: I asked the hon. Gentleman to be good enough to give an example where capital reorganisation——

Mr. Boyd-Carpenter: I am much obliged to the right hon. Gentleman. I recall it at once and he need not go any further. One of the perfectly simple things would be an issue of bonus shares in order that they should go to the Agency to be the basis of a new issue.

Mr. Strauss: I am not a taxation expert, but is the hon. Gentleman saying that the distribution of bonus shares is likely to attract a distributed profits tax in those circumstances?

Mr. Boyd-Carpenter: I am advised by the Solicitor-General that not only is that so, but that it is in Section 36 of the Finance Act. 1947.

Question put, and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 27.—(ASSESSMENTS, ETC., IN ISLES OF SCILLY.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Harold Wilson: This Clause involves a considerable number of estimable people who so far have been free from taxation. The Clause involves them in Income Tax and I should have thought that the Treasury Bench would have been good enough to give the Committee at least a brief indication of the way in which it has come about that this Clause has been included in the Bill, before the several hon. Members who want to take part in discussing the Clause seek to intervene. Perhaps, therefore, the Financial Secretary, or the Economic Secretary, or the Chancellor who has just returned to the Chamber, can tell us something about the reason which led the Government to impose Income Tax taxation in the Isles of Scilly.

Mr. G. R. Howard: In intervening for a short time, I should like to say first how much the Islanders appreciated the way in which they were received by the Chancellor and the time he devoted to listening to their case. I should like to take a few moments to ask a few questions of the Chancellor on certain points. First of all, why was this tax imposed? How many times had it been considered in the past, and if it had been considered—which I believe is the case—why was no action taken?
I believe that in the brief presented to the Chancellor when he received a deputation it was stated that the anomalous position of the Islands has for many years been recognised by Parliament and that the wording of many Acts dealing with local government functions have left it with the Minister concerned to decide how much of each Act should apply to the Islands. I believe that imposition of Income Tax was considered before and it was decided that no action was to be taken.
I should like to know the estimated yield of such a tax and from what type


of persons the returns are to come. I believe that there has been some misapprehension on the part of certain hon. Members that the case of the Isles of Stilly was a repetition of that of the Channel Islands where people went to evade Income Tax. That is not so. As many hon. Members know, there is only one landowner in the Islands, namely the Duchy of Cornwall. The land is held under long lease from the Duchy. There is one other largish landowner, but the land is farmed mainly by small people or owned—in the case where there is ownership—in Hugh Town, in the main Island of St. Marys, which was sold some time ago by the Duchy.
In the case of the one large leaseholder, what would be the result of the imposition of tax? I happen to know that he has made considerable losses for some years, but as he was not paying tax on his Island income he could not claim for those losses. I understand that he will now be able to do so with a consequent loss to the Treasury. How many extra people will be required to administer this tax? I know it has been said that it will be administered under the West Penwith area, but if these people are to be subject to Income Tax there must be an increase of staff to deal with it, and how many men would this entail?
Is it worth upsetting the Island's economy? I think the Chancellor would agree that the leader of the deputation made a very moving case and was able to show the Chancellor that a very considerable tax on living is already imposed on those in the Islands. In my first speech on this subject I tried to show how this tax would fall especially heavily on the people in the off-Islands. The cost of taking something from Penzance to St. Marys is £1, and there is an additional cost of 10s. if that same item has to go to the off-Islands.
How are teachers going to be replaced? It has been pointed out that in two cases teachers who were coming have said that they will not come now. With the low amenity value in these Islands the main inducement was the fact that there was no Income Tax, but will teachers be attracted to the Islands now? There has been some talk of the doctor leaving. I hope it is not true, because he is a very good doctor, but no doctor can increase his clientele beyond a certain limit. If

the doctor goes, who will produce another one? Will the Minister of Health do so? Before the incidence of taxation there was for some years a question of the construction of a new steamer. If taxation comes to the Islands what will happen about her? Will the Islanders be in a position to pay for her?
Now I come to the absolute crux of the whole problem. If taxation is imposed, will there be an increase in freight costs? Wherever one goes and however one looks at the question, the cost of freight is the absolute kingpin upon which the whole economy rests. Those who have studied the recent debate in connection with the MacBrayne Steamship Company know how important their contract is.
It has been said that our case is the same as that of the Western Isles and that we should therefore not be treated differently. Is that so? First, the Western Isles have not their own county council. Secondly, the steamship service to the Western Isles has a very large Government subsidy, whereas our steamer is entirely self-supporting. It is run, financed and paid for by the Islanders themselves and by the people who visit the Islands in the summer. There is no subsidy from the Government. If we are to be treated, in the same way as the Western Isles it would surely be fair for us to ask for the same treatment with regard to a subsidy, for which the taxpayers will have to pay.
9.45 p.m.
Is there a chance of depopulation? I understand that the census figures for the Western Isles have been steadily falling. I am informed that at the 1911 census the figures were 46,732 and that in 1951 they were 35,592. Is that going to be the same with us? What are the possible effects? It has been suggested that people have been too apprehensive about the effect of this tax and that it may not affect them as much as they think. But if there is an increase in freight charges, it will affect everybody in the Islands whether they pay tax or not. How will it affect the labour position in the Islands because to a great extent labour is not indigenous. If the tax is introduced and the farmer has to turn his man off, the man may say, "I am going to the mainland. I am not staying here; my inducement for staying here was the fact that I could save a little more because I paid no tax."
People ask, "Why should they not pay tax when they get the benefits of National Insurance?" But it is not merely a bus ride away from a hospital. I know of the wife of a working man who had some trouble with her ankle and went to the local hospital; and, on instructions from the hospital, she went to Redruth for further treatment. I know her treatment cost her £40, because it is only in special cases that free transport is provided. Once on the mainland, the weather may change and for 24 hours one has to put up at a hotel and pay for the accommodation. Those costs do not have to be met by other people. Lack of amenities, too, makes it difficult to get nursing sisters to the Island. They will not stay there because of the lack of amenities.
Now that the Chancellor has had time to consider the case made by the deputation, I hope he may give some indication of his courage, which I am sure everyone recognises, by saying that this action was rather hasty and can be corrected. Perhaps there could be a delay in the imposition of the taxation pending further inquiries, and perhaps there can be consideration on the part of the Chancellor of the question of a subsidy for the steamship company. I hope the Chancellor will be able to assure the islands that he has considered the case sympathetically. It is for that reason that I have sought to give him an opportunity to let us know his intentions, and I am reserving whatever action I think necessary for the Report stage.

Mr. Grimond: I feel that I should say something in sympathy with and support of the other end of Britain. I should like to start by warning the hon. Member for St. Ives (Mr. G. R. Howard) not to put too much faith in county councillors. We have two, and they have singularly failed to keep the Chancellor of the Exchequer out of my constituency. Indeed, I sympathise with the hon. Member only too much about the incursion of the Treasury, but it is something from which we have had to suffer for many years.
It will be generally agreed, I think, that this is a thoroughly reactionary proposal —the sort of proposal that one must expect from the Treasury when it is manned, if I may use the word, by one

right hon. Gentleman from the flatter part of the Eastern Counties, one hon. Member from the calmer backwaters of the Thames and one hon. Member from the shadows of the Home Counties. None of them has had any experience whatsoever of the difficulties of living in islands.
I can support everything which the hon. Member for St. Ives has said. Let the Chancellor of the Exchequer come and break his leg on one of the outlying rocks of my constituency and see how long it takes him to get any benefit out of the National Health Service. [An HON. MEMBER: "Leg or neck?"] I said leg. We start with the legs and work upwards. Many of us hoped for a very long time that a high officer of the Treasury would slip on our rocks, but so far in vain.
What makes this Budget all the harder for islanders is that this Budget has been hailed as a great gala event for the nation, as a great incentive Budget. Excess Profits Tax is to be abolished, but unfortunately we cannot make excess profits. There is to be a reduction in Purchase Tax on electric fires, which seems to trouble the conscience of at least one hon. Member of the Labour Party, but many islanders have no electricity. Television may come, but not to the islands. The final blow, so far as I am concerned, is the concession to cricket. The Chancellor of the Exchequer attaches an almost religious significance to this, but we in our islands are unable to play it, because the ball will not bounce. Our great summer game is football.

The Temporary Chairman (Colonel Gomme-Duncan): I must remind the hon. Gentleman that we are not discussing Orkney and Shetland, and must confine ourselves to the Scilly Isles, although passing references by way of illustration are permissible to other islands.

Mr. Grimond: These are merely passing references, Colonel Gomme-Duncan. However, I do not want to delay the Committee unduly even on this interesting topic. I do not know what the national game of the Scilly Isles is.

Mr. G. R. Howard: I hope we shall have visitors to come and find out some of the games enjoyed by the islanders.

Mr. M. Follick: Pitch and toss, I should think.

Mr. Grimond: Whatever they are, they will not have benefited by this Budget. The Chancellor of the Exchequer, as so often, is moving in the wrong direction. Instead of extending the tax to the Scilly Isles in this way, he should extend the concession rightly given to them to other islands. If he says it is rather difficult for him in present circumstances and the state of the nation to extend the concession all at once to all the islands, let him make a beginning by working round the coast, beginning with the Isle of Wight, and continuing on.
There is a great deal to be said for tax concessions for islanders, fair shares for all of them. Let this happy position be spread as widely as possible. Whatever may be our views about the pirates of Penzance, I hope that the hon. Gentleman the Member for St. Ives will show a free spirit and vote against this proposal, and if he will not vote against it, at least secede to France.

Lieut.-Colonel Marcus Lipton: I should not like the discussion to conclude without at least one voice being raised from the Labour benches to provide some semblance of all-party support for the plea put forward by the hon. Member for St. Ives (Mr. G. R. Howard). If anything, he understated the merits of the case that he was seeking to advance.
The Scilly Isles are a very poor, an almost poverty-stricken, part of the United Kingdom. The hon. Member for St. Ives did not point out that the total rateable value of the Isles amounts only to something like £6,300, and that a 1d. rate brings in only £28, and that the present rate of 21s. 6d. produces only £6,700. Out of that the rural district council, which is responsible for the local government of the Scilly Isles, has to face all the responsibilities of a fully fledged county council. It has to bear the cost of education, National Assistance, National Health and other county and rural functions. That already imposes a not inconsiderable burden upon the population of these islands.
The hon. Member for St. Ives quoted some figures in relation to the population of the Western Isles. It is also quite clear that the population of the Scilly

Isles is falling, because the figures I have been able to obtain show that according to the census of 1901 the population was over 2,000, whereas now it is only 1,800. If a further burden of taxation is imposed, the population of these islands' may well be further depleted.
I should like to quote one other example to show that there is not a vast sum of money available to the local government authorities in the Scilly Isles, which I think can best be borne out by the fact that the Clerk of the Council is also the Coroner, the Welfare Officer, the Registrar, the Employment Officer and the Education Officer; besides which he is also in private practice as a solicitor.

Mr. Julian Snow: That is not surprising.

Lieut-Colonel Lipton: That does not seem to indicate a very high level of prosperity. Here we have a population of 1,800 people, not all of whom can by any stretch of the imagination be liable to Income Tax when it is imposed. In order to collect this tax the Chancellor will either have to send an Income Tax collector from Penzance or open an Inland Revenue office on the islands. In any event, it seems to me that he will have to offer some additional inducement to the tax collector, either by way of danger money or subsistence allowance, to enable him satisfactorily to discharge the duties that will be imposed on the local Income Tax collector when the Clause goes on to the Statute Book. What does the Chancellor anticipate will be the profit on this transaction? How much does he expect to raise by imposing Income Tax on this tiny population? Will the gain really be worth the candle?
The hon. Member for St. Ives has referred to the various disabilities and disadvantages from which the population of the Scilly Isles suffers. Some people are under the impression that the islanders make vast sums of money out of the production of early flowers and vegetables. The fact is that it costs very much more to send 1 cwt. of flowers from St. Mary's to Covent Garden than from Penzance. From St. Mary's I understand it costs 25s. 2d., whereas from Penzance it is only 13s. 2d., so they have these additional charges in respect of distribution costs both ways, which is an additional disadvantage from which they suffer.
I therefore hope the Chancellor will not adopt too stony-hearted an attitude. He will have to convince me that the additional expenses he will incur will be more than amply repaid by the revenue he is likely to raise. I think the Committee are entitled to know what the Chancellor has in mind as to the possible product of imposing Income Tax upon this outpost of the United Kingdom. It is rather curious that the present Government should suddenly be so impressed with the need for uniformity that they should seek to include the Scilly Islanders within their fatal financial embrace. I hope that the Chancellor will view with some sympathy the plea which has been put forward by the hon. Member for St. Ives, supported, as it has been, by two Members of the two other political parties represented in this Committee.

10.0 p.m.

Mr. H. Wilson: I think that hon. Members on both sides of the Committee will greet this Clause with at least some sentimental regret, even if we recognise that we have to bow to financial inevitability. The hon. Member for St. Ives (Mr. G. R. Howard) said that the Scilly Isles did not represent an area to which a large number of people had gone for the purpose of avoiding taxation, even if, in some of the examples which he gave in his speech, he came perilously near to suggesting that there were individuals there who wanted to leave, or he had heard so, and that there was a danger of important offices becoming vacant and the danger of those who were about to go there deciding not to do so because of the Chancellor's announcement.

Mr. Howard: I wished to show that in my mind there was a difference between a tax dodger and offering someone an inducement which might make up for the lack of amenities consequent on living on those Isles.

Mr. Wilson: I am bound to say that there are some very considerable amenities, certainly from the point of view of the attractiveness of the Isles, but I agree with what, I think, was his main point, that this has not been a haven for tax dodgers.
I was interested to see in one of the local papers—and perhaps the hon. Gentleman will tell me that he was mis-reported—that he did at the time of the

Budget speech complain that the Chancellor had made his announcement without consulting the hon. Gentleman. I have never heard any suggestion that the Chancellor of the Exchequer went so far as to consult any interests before framing his Budget, even the most powerful of them, let alone the hon. Gentleman. I can understand that the hon. Gentleman has been active since the Budget in making clear to his constituents there that he intends to fight this matter.

Mr. Howard: I was given to understand that in the case of my predecessor and in other cases various consultations had taken place. After all, this was a thing which could be generally discussed, without disclosing Budget secrets, as to the proper course to be taken, and various advice sought through the local Member of Parliament.

Mr. Wilson: I should be very surprised to think that any Chancellor of the Exchequer would be consulting a local Member of Parliament before introducing a tax to cover the area concerned.
It has been said about the Scilly Isles that for many years these Islands have been immune from taxation. All the books call them the "Fortunate Isles" or the "Isles of the Blest," which I think, was originally meant, not from the point of view of their immunity from taxation, but with reference to an ancient legend that these were the areas where the souls of the departed went to find permanent bliss. It was argued that King Arthur was amongst those who believed so, and that of the very many resting places from which he had to select he finally decided on this one.
In recent years this title has been referred to in relation to their immunity from the activities of the Chancellor. There is undoubtedly, as the hon. Gentleman has said, a strong feeling on the Islands, and it is quite obvious there is a lot of sympathy in all quarters of the Committee for their point of view. I am glad that the hon. Member for Orkney and Shetland (Mr. Grimond) stressed some of the similarities between the islands in the North and the Isles of Scilly.
It would be difficult for us to vote against the Clause, though if the hon. Member for St. Ives is going to consider his position on the Report stage in the


light of the Chancellor's reply tonight we shall all be very interested to hear what he has to suggest then. It is probably true, unless the Chancellor is able to show us that he has learnt a lot from the deputation which the hon. Gentleman took to see him, that the simple view that the Income Tax law should be extended automatically to the Scilly Isles does not take full account of many of the factors mentioned by the hon. Gentleman, particularly the high cost of transportation.
The Chancellor will no doubt reply that the high costs of transportation, of raw materials, of equipment and tools and other things enter into the costs of the economic activities in computing the income which is finally taxed and that that reduces the net income subject to tax; but the necessarily high cost of transportation and certain other services on the Island means that the real value of the income after taxation must be very much less and the imposition of taxation at this stage means that many people on the Island will be enjoying a lower standard of life than their opposite numbers on the mainland.
It is also true that the income of those who will be paying tax is not at all easily earned. There is very little suggestion that this is an area to which large numbers of holidaymakers go, thus furnishing an easy and large source of revenue. There is a scarcity of accommodation and a relative shortage of travelling facilities. I know how difficult it is to book flying accommodation there, even many months ahead. It means that the numbers going to the Islands are very much smaller than the numbers who would want to go once they had seen what the Islands are like. The income from fishing must be very small, and it is dangerously earned, as we know from certain tragic incidents which occurred last August.
The flower industry, to which reference has been made by my hon. and gallant Friend the Member for Brixton (Lieut.-Colonel Lipton), is not only subject to the vagaries of the weather, transport difficulties and the high cost of transport, but is not as profitable as it might be owing to the vice-like grip held over the flower industry in the Scilly Isles by the Covent Garden dealers. That means that

although large profits are made out of the Scilly Islands by Covent Garden, relatively small profits, and in some years no profits at all, are made from the flower industry in the Islands themselves.
I hope the Chancellor will not have excessive illusions about the high tax yield from the Scilly Islands. Perhaps he will tell us what his expectations are. Perhaps he will tell us that his main reason is to secure equality of treatment between the Islanders and those on the mainland and some other islands which have been mentioned. I hope the Chancellor will watch the cost of tax collection, especially the travelling expenses of the officials of the West Penwith division. I am not suggesting that public servants would be likely to seek to travel more than is necessary for the purpose of their official duties, but the officials of this division will be subject to very great temptation to go over to the Islands personally rather than conduct their business by correspondence whenever there is a difficult case to be settled.
I will conclude by saying that I think we all feel that when something old and rather quaint like the immunity of the Scilly Isles from Income Tax gets caught up by the long arm of the tax gatherer, it must always be a matter for regret. We obviously cannot vote against the Chancellor's proposals. I hope he is going to tell us a good deal more as to why he made the decision this year after the frequent consideration that has been given to it in previous years, and what changes have come about to lead him to take this action at this time. We cannot oppose it, but I think it right that we should not let it go without an expression of our very great feeling.

Mr. F. H. Hayman: As a Member for the constituency which borders that of the St. Ives Division, I should like to support the hon. Member for St. Ives (Mr. G. R. Howard) and to emphasise, even at the risk of some repetition, the high costs which have been borne by the Islanders through the transport of necessary items to the Islands. I should also like to emphasise the initiative and grit of the people in the Islands, who during the present century have built up a special economy for themselves, and I think have fired the imagination of most people who have any knowledge of them.
I should also like to stress the high cost it is for them to go to hospital. As the hon. Member for St. Ives said, it is a considerable expense indeed, even if they have only a slight accident, if they have to go to the mainland for ordinary treatment which costs comparatively little to the people who live near hospitals. For those reasons, I hope that the Chancellor will give an explanation, and perhaps decide, after all, not to insist on this tax.

Commander C. E. M. Donaldson: I wish briefly to speak on this matter, but I do not wish to repeat any of the arguments put forward. This is an occasion when there is complete unanimity in the Committee, and I am sure it does not frighten my right hon. Friend the Chancellor of the Exchequer that this unanimity is on something which appears to be in disagreement with his Budget statement.
My constituency does not border the Scilly Isles, and I intervene only in virtue of the fact that my ancestors all came from Cornwall. I was born in Penzance and I have a natural interest in the Scilly Isles. I have followed their history ever since I was a boy, and I think it is as well that we should have this unanimity for a people who live in these islands and whose ancestors have been there for many generations. These people take little thought of political activities and such things which interest those on the mainland.
It must have come as a great bombshell to them when it was announced that Income Tax would be extended to them, as it did undoubtedly to my hon. Friend the Member for St. Ives (Mr. G. R. Howard). It is only right that we should have this sympathetic support from hon. and right hon. Gentlemen in the Labour Party, in the Conservative Party and in the Liberal Party. I am sure I am expressing the feelings of all Cornishmen or half-Cornishmen who live in many parts of the world when I say we should like to hear of a generous gesture from my right hon. Friend, and I trust that we may have it tonight before leaving this Clause.

Mr. R. A. Butler: We have had an interesting debate on this subject, like many others. I think the right hon. Gentleman the Member for Huyton (Mr.

H. Wilson) is right in saying that it is virtually impossible for a Chancellor to enter into consultations, except under very prescribed rules and regulations, before introducing his Budget. If the islanders think they should have been consulted, I am afraid I must plead precedents for having had to reserve my counsel upon this matter, which has been so difficult for them. Other hon. Members have joined in to make their contribution but we should all wish that I should devote my attention to the speech of the hon. Member for St. Ives (Mr. G. R. Howard), who has done so much to represent the views of the islanders who are in his own constituency.
10.15 p.m.
In the first place, I should like to say what a pleasure it was for me to meet the deputation from the Isles and how impressed I was by their demeanour and the case they put to me. In particular, I was impressed by the families who come from some of the outer islands, Tresco and Bryher particularly, and of the life that is led on all the islands, especially in the winter months.
The hon. Member for Orkney and Shetland (Mr. Grimond) hopes very much that I shall break my leg or my neck on a pier or stone in his constituency——

Mr. Grimond: Only a leg.

Mr. Butler: For that relief much thanks. I was equally delighted with the prospect of spending a winter on one of the outer islands of the Scilly Isles which I was assured I should find somewhat difficult to sustain.

Mr. Grimond: When is the right hon. Gentleman going?

Mr. Butler: I am afraid that Her Majesty's business is keeping me in the more salubrious climate of the capital.
The hon. Member for St. Ives asked me the reasons why this had been decided upon and why it had not been done before. The reason was that there has never been an Income Tax Division, a general body of Income Tax Commissioners, with jurisdiction in the islands, and therefore there has been no machinery for the assessment and collection of Income Tax on income arising in the Scilly Isles to Scilly residents. Of course we have been able to deal with those who are involved in the ordinary


taxation of the mainland. It involves not only companies and persons with large incomes but, as has been seen from the popular Press, which has devoted a considerable number of columns to this subject, it also involves one or two officials of the Post Office who pay tax.
The reason this subject came up was that it arose in the ordinary range of activity of the Commissioners of Inland Revenue. The reason they brought it up was that it has been under consideration for a very long time. There is no doubt that there have been representations, particularly from the mainland not too far from the Scilly islanders that, for example, those who grow flowers on the mainland want to know why they should pay tax and why the islanders should not. In fact, although I am unable, under the ordinary arrangements between the Chancellor of the Exchequer and the Revenue, which must of their nature be confidential, to give further particulars, I must say that there was sufficient evidence which made it necessary for me to take a decision.
The Committee may well say that I could have taken a decision not to pursue this matter but, after conscientious thought, I came to the conclusion that there was no reason which I could sustain that would prevent me from applying the same law to the Scilly Isles as applies to the less fortunate or more fortunate, whichever way hon. Members like to see it, residents on the mainland just opposite. In particular, from the purely human point of view, the matter has been brought rather more to the front lately because there were rather bad flower seasons on the mainland and the islanders have been able, owing to the earlier climate which fortunately favours their bulb and flower industry, to come in and make a living while some of their less fortunate competitors on the mainland, subjected to tax, have not done so well, largely for weather reasons.
That gives an example of how the subject has come up. It has been decided on the highest principle, namely, that there is no apparent reason why this one island or section of islands under the United Kingdom should be free from tax while all others are taxed, including the constituency of the hon. Member for Orkney and Shetland, including the

Western Isles and including every single island except Lundy. The Island of Lundy is not subjected. There, however, there are only at the maximum in the very best possible weather 20 inhabitants, and it has been decided that it is impossible to levy tax on so small a community.

Mr. Ivor Owen Thomas: What about the Isle of Man?

Mr. Butler: The Isle of Man, of course, has its own administration and Income Tax, and the Channel Islands also have their own administration and their own method of Income Tax. That means that in logic, once the matter had been submitted to my judgment, there was no other decision Which I could conscientiously have taken.
The second question of the hon. Member for St. Ives was about the amount that is likely to be collected. I cannot give an appreciation or estimate of the total that is likely to be collected. It depends, in short, on what we collect. It therefore would be difficult for me to give a general all-round figure, and I think it would be contrary to ordinary precedent for me to do so. But the fact is that we think it worth while collecting, otherwise this decision would not have been taken.
That leads me to the third question of the hon. Member—what kind of person will pay the tax? I have tried, as the hon. Member probably realises, to take a most conscientious interest in this matter. I have before me an account of the topography of the island. The main acreage of bulb land, leaving aside the grassland, is in the island of St. Mary's, but there are other small amounts of bulb land, the largest being in the island of St. Martin's and smaller amounts in St. Agnes, Bryer and Tresco. It is from that bulb land that it is most likely that the requisite incomes will be made which can be submitted to the shears of the tax gatherer.
There are in St. Mary's five hotels and licensed premises, which would be likely to yield a certain amount. There are, of course, the owners of the launches and there are many residents, to one of whom the hon. Member referred. Of course, if they have made a loss, we shall not make anything out of it. If they have made a profit, we shall. That leads me to the


main observation about the nature of the Income Tax which I want to make: namely, that we cannot levy tax if there are no profits from which to levy tax. To that extent the Income Tax and Profits Tax are an equitable instrument.
Looking at the position from the point of view of labour, to which the hon. Member referred—I am trying to follow each of his points—I do not think that the working population of the islands, judging by the representative of the working population who came with a deputation to see me, are likely to suffer very much from the imposition of P.A.Y.E. or Income Tax. A married man with two children earning £500 a year will pay only £1 2s. 2d. a year, and as I anticipate from the account given me by the representative of the working people of the islands that the general wage level is not as high as that, it is very unlikely that many of them will pay any tax at all. In fact, I know very few who will.
The position, therefore, is that there are severe limits to the amount of tax we shall be able to raise. There are, of course, profitable concerns, notably those engaged in the bulb land and flower industry, who, we think, ought to be treated on an equality with those who work on the mainland.
The hon. Member for St. Ives raised various other points. He raised the question of the teachers, the doctor and the steamer. I have in my possession complete accounts of the administration of the islands in respect of education, in respect of the equalisation grant total under the Ministry of Housing and Local Government and in respect of the steamer, its finances, its age and the period of its replacement. I have examined most carefully whether there is any possibility of meeting some of the islanders' anxieties and doubts on these various scores.
In the matter of the teachers, I do not think that this change is the sole one which makes their position difficult. If I thought it was the sole reason why the hon. Member and the county council were having difficulty with teachers, I should be even more concerned than I have been by his representations. In the case of the doctor, I do not believe that his future is governed solely by a consideration of tax or no tax. In the case of the steamer, which I have examined

with the greatest possible care, it does not appear that for the immediate future of this gallant steamer, the "Scillonian," the company which runs it are likely to need to renew its services.
I am watching the position, but I must tell the hon. Member that if we are to introduce the principle of a subsidy for the "Scillonian" to steam between the mainland and the islands we would have to do the same for the Orkneys and Shetlands, which do not get a subsidy, and the same for Northern Ireland, where we have already had long conversations which have resulted in the non-provision of such a subsidy. As the hon. Member will have observed, there is a subsidy in the Western Isles under the MacBrayne contract, but for various reasons I find it very difficult to copy that example. Therefore, with the best will in the world, I cannot see my way to accede to the proposal of the hon. Member about that. There are alternative transport services to the island, namely, the air service, and I would certainly not be prepared to envisage a subsidy for that. I am brought back to the very real difficulty of making any proposal at present which will be of particular value to the islanders.
The hon. Member concluded his speech by asking for delay in which an inquiry could be made. I have also thought of that, but I frankly do not need an inquiry. Therefore, if I proposed further delay in introducing this measure, I should only be deluding the hon. Member and his friends in the islands. We know what to do in regard to the assessments. We cannot possibly give an accurate assessment of the total until the individual assessments are made and it would be wrong and dishonest if I suggested that an inquiry would put that right. The hon. Member asked me about the possibility of a steamer subsidy and I have given reasons against that.
This provision will not operate for another year in respect of P.A.Y.E., which will not start to be levied until the next financial year. The Profits Tax and other levies will not be levied until the year after because of the assessment and Surtax, which is always a year late, will not be taken until the year after that. I have thought of the possibility of delaying the whole for another year, but I do not think that would make the position


very much better for the islanders if, in the end, they are to be taxed.
I cannot give any undertaking to the hon. Member. If he can introduce any further argument which will make me consider the matter between now and the Report stage I will listen to what he says, but I must ask the Committee tonight to agree to this Clause being passed. We should do it in the spirit of sympathising with the islanders, but I am afraid that in the spirit of logic and also of justice I cannot interpret my difficult duties in any other way than to proceed with this proposal.

Mr. Ede: We have just listened to the modern version of the Walrus and the Carpenter, "I weep for you, I deeply sympathise," but, as far as any help is concerned, there is nothing doing at all. He will eat them every one.
I am very sorry to see this anomaly disappear, because the Scilly Isles have played no small part in social experiments in this country. They were the first part of England and Wales to have compulsory education provided by the benefactor and owner of the islands, who in those days was an unhyphenated Mr. Smith. He arranged compulsory education on a sound financial basis which ought to appeal in a historical way to the Chancellor of the Exchequer. If a child made a full attendance during the week the parents paid 1d. but, if he stayed away at all, the parents paid 2d.
There are a great many anomalies in regard to these places. They get no highway grants from the Ministry of Transport. Their motor vehicles, in consequence, pay no tax. But motor vehicles, taxed or untaxed, destroy the roads. When I was there in 1947, as Home Secretary, they were faced with the difficulty that the few motor vehicles they had were destroying the roads and so the council proposed that there should be a voluntary payment of 5s. a wheel by each owner of a mechanically-propelled vehicle. Six motor car owners agreed to pay £1 each, and the others said, "We will wait to see what you do with the £6 before we pay anything."
As Home Secretary I doubled the size of the police force in Cornwall. I have no doubt that will be helpful to the right hon. Gentleman when this project comes

into effect. At the same time I halved the cost by creating a joint police authority for Cornwall and the Scilly Isles. They used to have one policeman. Now they have two, but they cost the islands about half of what one would have cost.
I was hoping that the hon. Member for St. Ives (Mr. G. R. Howard) would have had a more sympathetic answer. In the first flush of the great Liberal victory of 1906, Sir Henry Campbell Bannerman said at the National Liberal Club that he had won the country from the Scilly Isles to the isles which were far from Scilly. We have heard an hon. Member for what he regarded as the latter part of the country speak in support of this claim tonight.
I do not share the universal desire for complete tidiness in these matters. These people occupy islands where it is very difficult to get a living and where great things have been done in the past. I sincerely hope that on Report the right hon. Gentleman will be able to show not merely sympathy but appreciation of their position.

Mr. G. R. Howard: I am grateful to the Chancellor for saying that he is prepared to consider further representations. I hope that he will be able to give some indication of how much he expects to raise and what will be the cost.
Like the right hon. Gentleman the Member for South Shields (Mr. Ede), I feel it is a great pity that we should be too logical. After all. two wrongs do not make a right. If other people have been unfortunate enough to have experienced the incidence of taxation over a good many years, and rather slowly, it seems hard on these unfortunate Islanders that they have to have not one tooth pulled, but. as it were, practically their entire denture extracted at one go.
The Chancellor said he saw no reason why the "Scillonian" should not be replaced. I understand she is due for replacement in a few years' time. He mentioned the question of alternative freight, but I think he would find on inquiry that the cost of the transport of flowers and other commodities would be so prohibitive as to make it impossible except by steamer.
In view of the Chancellor's assurance that he is prepared to consider other


representations, I hope to be able to submit further evidence to him later as to why we should not be too logical in this unfortunate decision.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 28.—(EXTENSION OF POWER TO ACCEPT PROPERTY IN SATISFACTION OF DEATH DUTIES.)

Mr. E. Fletcher: I beg to move, in page 29, line 28, to leave out "ordinarily."
Whatever we may think of the unsympathetic and unromantic attitude of the Chancellor towards the Scilly Isles, I am sure we all appreciate the object which he had at heart in including this Clause in the Bill. This provision is directed to the preservation of objects of scientific, historic and artistic value to the country. It is designed to ensure that a great many of these objects of national importance will not be sold abroad.
My purpose in moving the Amendment is to ask the Chancellor to remove what seems to me to be an unnecessarily severe limitation on the scope of the Clause. It will be appreciated that for a long time it has been possible for the Treasury to accept, in appropriate cases, if they approved, land in lieu of Estate Duty. The Clause gives the Treasury the further power of accepting in lieu of Estate Duty chattels where they are the contents of houses that are so accepted.
This is a notable concession to people who have historic houses and chattels of national importance. It not only enables them to use those objects in payment of Estate Duty but it also saves the value of those objects from being aggregated with the remainder of the estate for the purposes of calculating the rate at which Estate Duty is charged. In view of that I appreciate that unless there were some limitation a concession of this kind might be susceptible to abuse. But there is an overriding provision which ensures that no representative of a deceased person can require the Treasury to accept either land or chattels. It is always for the Treasury to decide whether they will accept goods of any kind in lieu of Estate Duty.
As this is purely an enabling provision it should not be unnecessarily limited by the introduction of the word "ordinarily." I can imagine cases in which there have been objects which have been for a long time associated with buildings of national interest now vested in the National Trust but which have for some time been in one of the national museums. There are, for example, a good many pictures which were formerly in houses now belonging to the National Trust but which are now in national museums. In cases of that kind I should have thought that it would have been appropriate for the owners, if they so desired, to have tendered those objects in payment of Estate Duty.
I merely ask the Treasury to widen the scope of the Clause to provide even larger enabling powers than they have given, appreciating that in any event they will have the final word when deciding whether or not to exercise their powers.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter): As the hon. Member has perfectly correctly stated, the word "ordinarily" which his Amendment seeks to delete from the Clause is a limitation upon the power which the Treasury have to accept these objects. He is quite right in saying that the final responsibility in deciding whether to accept or not rests with the Treasury. Therefore all the Amendment would do would be somewhat to widen the power which we should obtain. In the circumstances it seems to me the hon. Gentleman's proposal is a reasonable one, and I am quite prepared to accept it.

Amendment agreed to.

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Mr. Kenneth Robinson: I do not think we should leave this Clause until I have expressed on behalf of the National Trust, on whose Executive Committee I have the honour to serve, their gratitude to the Chancellor for granting this concession, which they have been seeking for a number of years. I think that the provisions in an earlier Finance Act which enabled the Commissioners to accept buildings and land in lieu of Death Duties have been of great benefit to this country.
There are cases in which the contents of those houses have become an integral part of them. In the past the contents have been dispersed, and there are existing cases where houses are vested in the National Trust and the contents are on loan, and but for this concession there would always be the risk that they would be dispersed on the death of the owner. We are very glad indeed that the Chancellor has found it possible this year to make this concession. We realise that the point of this Clause lies in the Treasury's discretion. We hope that that discretion will be exercised generously, and wisely, and I think that the whole plan will be of great benefit to the country.

Sir Edward Keeling: I should like to add from this side of the Committee my thanks on behalf of the National Trust, and to stress what is not always appreciated; that all these things, the National Trust's houses themselves and the things which are at present on loan, but the loan of which now under this Clause, can be vested in the Trust, are on view to the public. I think this is a good Clause.

Dr. Barnett Stross: It is very pleasing at the end, as I hope, of our discussions tonight to be able to congratulate the Treasury and to say "Thank you" for having accepted the Amendment of my hon. Friend the Member for Islington, East (Mr. E. Fletcher) to leave out the limiting word "ordinarily," and for having brought this Clause forward at all. I should like to ask how the Treasury will seek this advice. In this Clause we have another limitation, for it says:
where it appears to the Treasury desirable for the objects to remain associated with the building.
I should like to know who would be the expert adviser and where the advice would be sought. I am not so much concerned with pictures of international fame or works of art which might be called of planetary significance. I do not think it is of the greatest important whether a Rembrandt is in Chicago, London or Paris, because they belong to the community of the world, for they are works of such great importance and unique value.
But there are other things we own, or used to own, in large numbers, and which we find in all types of houses, namely tapestries which are essentially British, and of course furniture. I wish to remind the Treasury—for it is their concern, and will be more their concern in a fortnight's time when we are discussing an allied subject—that these fragments of furniture, tapestries and objects of that kind, of which there are a fair number left, are as much a part of our national heritage as are the very trees, mountains and valleys.
These are national and not international things. Their significance to us is of the very greatest importance, because they were created here. I should like the widest possible interpretation by the Treasury in connection with this type of contents of these historic houses, if they be worth keeping, and that we should do all we can to keep them in this country.

10.45 p.m.

Mr. Arthur Colegate: I should like to join other hon. Members in warmly welcoming this Clause, but I want to ask about one thing which was not made clear in the reply given to the question of the hon. Member for Islington, East (Mr. E. Fletcher). Is it quite clear that valuation of these objects is not to be aggregated with the rest of the estate? That is a very important question. If so, it is quite clear that a very valuable collection might have to be sold if it were to be aggregated with the rest of the estate, when the difficulty of finding the increased amount of duty required might, as I say, result in the sale of the objects concerned. I should be very glad if the Financial Secretary would tell us what will happen with regard to the valuation of these objects.

Mr. Boyd-Carpenter: First, let me express my right hon. Friend's appreciation for the kind and courteous things which have been said by hon. Members on both sides of the Committee about this Clause.
There are two questions which I must answer. The hon. Member for Stoke-on-Trent, Central (Dr. Stross) asked whether we would seek advice in deciding which chattels to accept. As he no doubt knows, there are many sources—official, semi-official and unofficial—from which


advice can be obtained in these matters. If I listed one or two of them it would appear to exclude others, but I can assure him that we have the advantage of a great deal of advice, including that of hon. Members.
My hon. Friend the Member for Burton (Mr. Colegate) asked about the effect on the tax. This Clause does not affect the pre-existing tax position in respect of aggregation or otherwise. All it does is to enable the Commissioners of Inland Revenue to accept these articles in settlement of tax liability. It does not affect the pre-existing position. It merely provides that instead of paying £x one can offer an article, which the Inland Revenue are required, with our permission, to accept.

Mr. Colegate: Under what valuation would that be?

Mr. Boyd-Carpenter: It would be under the ordinary valuation for Estate Duty purposes.

Mr. E. Fletcher: I think we should clear up this matter, because this is an important point. Would the Financial Secretary be good enough to look at subsection (3)? As I understand it, the whole object of that subsection is to extend the present operation of Section 40 of the Finance Act, 1930. The Financial Secretary will correct me if I am wrong but, pursuant to Section 40, certain objects of national, historic, scientific and artistic interest are at present altogether exempt from Estate Duty unless and until they are sold otherwise than to the National Gallery, British Museum or some other approved institution.
In answer to the question asked by the hon. Member for Burton (Mr. Colegate), the Financial Secretary said that the whole object of subsection (3) is to extend the present operation of Section 40 of the 1930 Act, and to provide that if, in future, any of the objects governed by that Act— being contents of a building—are offered to the Treasury and are accepted for Estate Duty, they shall come within the terms of Section 40 of the Finance Act, 1930, with the result that if they are accepted in payment of Estate Duty they are not considered as a sale and are not aggregated for the purposes of Estate Duty with the rest of the estate. That is the interpretation which has generally

been given to this Section, in professional circles, at any rate. I think it is important that we should know from the Treasury that they accept that as being the position.

Mr. Boyd-Carpenter: I think that the hon. Member misunderstood what I said. The Clause does not in general affect the tax position. As I think the hon. Member said, there is a provision in respect of goods and chattels that Estate Duty is payable on these when they are sold. Apart for such a sale, a sale which results in duty becoming payable, there are exempted sales to the National Gallery, the British Museum, and, I think, one or two other national bodies of that character. Subsection (3) provides that acceptance of these chattels in this way in lieu of Death Duties shall not count as an ordinary sale so as to attract Estate Duty which would be attracted by an ordinary sale.

Mr. Fletcher: With the result that the values of the objects are not added to the rest of the estate for the purpose of calculating the duty.

Mr. Boyd-Carpenter: With the result, as I prefer to put it, that the tax position remains undisturbed.

Question put, and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 29.—(STAMP DUTIES.)

Mr. E. Fletcher: I beg to move, in page 31, line 27, at the end, to insert:
(3) As from the first day of August, nineteen hundred and fifty-three, there shall be exempt from all stamp duties any instrument being a mortgage, charge or other deed securing any loan from the Public Works Loan Board to any local authority within the meaning of the Local Government Act, 1933, or any receipt given on the discharge or repayment of any such loan.
Clause 29 deals with Stamp Duties, and in particular is designed to give certain relief from Stamp Duties on transactions which are of particular concern to local authorities. I think that the position with which subsection (2) of this Clause deals was discussed about a year ago in connection with the Public Works Loans Act. The object of the Amendment is to carry the exemption from Stamp Duty one stage further. At present Stamp Duties are payable on all transactions between the Public Works Loan Board and local


authorities, of which there are large numbers every year. The amount of revenue this brings in to the Treasury must necessarily be not considerable, having regard to the amount of administrative work involved. The argument which I hope will appeal to the Financial Secretary is that in these days it is undesirable to produce unnecessary administrative labour in transactions between one Government Department and another, or between a Government Department and local authorities.
The whole burden of representations made from these benches for a long time has been that unnecessary administrative arrangements between the Government and local authorities should be limited. The object of the Amendment is largely directed to permitting those concerned with local government finances to reduce the present expense and administrative work of a detailed kind which is involved in stamping a large number of documents. If this Amendment were accepted by the Government it would produce considerable economy in the day to day operations of the Public Works Loan Board and of local authorities. It is very necessary to avoid any undue bureaucratic effort that can be avoided, and I hope that the Chancellor will be able to accept this Amendment.

Mr. Boyd-Carpenter: I appreciate the hon. Member's interest in this matter, as I understand that he is a member of the Public Works Loan Board. This Amendment, I think, goes a little further than was suggested by the comparatively innocuous way in which the hon. Gentleman presented it. That is, no doubt, an example of good advocacy. His suggestion was that some economy would be achieved. I am advised that the cost to the Revenue of what is proposed would be over £1 million. Therefore, a good deal of administrative trouble would have to be saved to compensate for that.

Mr. E. Fletcher: Is that the net figure or gross figure, because, of course, a large part of that is contributed to by the Exchequer?

Mr. Boyd-Carpenter: That, of course, is the actual loss of revenue which would accrue from this concession. Without taking into account such extremely complicated consequential effects on the local

authorities, which are, of course, by no means one-sided in this matter, what in strict, obvious terms the Committee must consider is not just a question of tidying up some administrative difficulty but a matter of £1¼ million.
The second point is this. The Clause really falls into two parts. The part to which the Amendment relates concerns the issue of local authority stocks in accordance with the new policy under which local authorities are enabled to go to the market, a policy with which, I know, the hon. Gentleman is familiar, and which he and I have discussed on other occasions. It was represented to us in the discussions with the local authorities that one of the difficulties in the way of a prudent local authority, when weighing carefully whether to exercise its right to go to the market, was the rate of Stamp Duty as increased some years ago. The Clause is intended, therefore, to meet their point of view by restoring the duty to the old and lower rate.
That is a quite different purpose, of course, from the issues from the Public Works Loan Board, with which the hon. Gentleman's Amendment is concerned, and I would suggest to him that, apart from the merits of the matter, which I have discussed, it would hardly be consistent with the purpose of this proposal, which deals with the question of loans raised by the alternative method open to local authorities, at the same time to take the step which the hon. Gentleman here suggests. I am afraid, therefore, that for these reasons it is not possible to accept the Amendment.

Sir F. Soskice: The Financial Secretary has said that my hon. Friend the Member for Islington, East (Mr. E. Fletcher) was acting in his capacity as an advocate.

Mr. Boyd-Carpenter: No. The right hon. and learned Gentleman must not say that. I was saying that the hon. Gentleman was presenting this as an innocuous proposal, and that that was, no doubt, part of the technique of a skilled advocate. I intended it as a compliment, and I would add it also to the right hon. and learned Gentleman.

Sir F. Soskice: The Financial Secretary really need not take the trouble to do that to me, so far as I am concerned.
I am quite sure that my hon. Friend had no intention whatsoever of presenting something that had a baleful quality in an innocuous guise. All he was doing was to try to put forward what seems to me, at any rate, and, I believe, my hon. Friends, to be a very sensible and modest proposal. What is the answer to that proposal? The Financial Secretary says that it will cost a £1 million, but that is not the whole of the picture. He then goes on to say that it is inconsistent with the purpose of the Clause. In what way is it inconsistent? He has indicated to the Committee what the purpose of the Clause is, that local authorities who want to go to the market are to be given certain reliefs. Why is that inconsistent with what my hon. Friend proposes?
11.0 p.m.
I do not want to repeat his arguments. He advanced them succinctly. First he pointed out that there would be saving in cost, administrative effort and labour. I simply rely on those same arguments that he used, and I must confess, speaking for myself, that I thought the Financial Secretary's answer was about the most disappointing one that we have had this evening. I hope that my hon. Friends, having listened to both sides of the discussion, will register their protest in the Division Lobby.

Mr. G. R. Mitchison: May I add one word? I completely fail to understand why certain borrowings should be exempt from Stamp Duty, and other borrowings, which are sought to be introduced by this Amendment, should not be so exempt. It seems to me that in this business of local government borrowing in general, the object of the Treasury ought to be to simplify and ease the borrowing by whatever method that can be done, and the Clause, so far as it goes, is a recognition of that. I should have thought it wholly illogical, having proposed to do it on those lines, to refuse to do it on the lines which are suggested by my hon. Friend the Member for Islington, East (Mr. E. Fletcher) Some time ago I suggest that it was to

use taxation—and Stamp Duty falls into that category—to make a political discrimination and I can see nothing but political discrimination in the Clause as drafted. It seems to me that the Amendment is justifiable if on no other grounds than it is sheer political preference to allow this in one case and to refuse it in another.

Sir Geoffrey Hutchinson: The aspect of this matter in which the local authorities are most interested is the question of Stamp Duty, not on the mortgages of their loans, but on the transfer of their stocks. Local authorities like to issue their securities as stamp-free securities, and in order to do that they commonly pay the Stamp Duty on the stock transfers. Double Stamp Duty has been a substantial burden and I am very glad that my right hon. Friend has now seen his way to do away with double Stamp Duty.
That is really the answer to the point made by the right hon. and learned Member for Neepsend (Sir F. Soskice). I do not think that the local authorities are particularly interested in the Stamp Duty on their mortgages. Indeed, many of them take the view that they would prefer to be treated in the same way as other borrowers; but double Stamp Duty on their stock transfers has been an important matter. It is important both to the local authorities and to the Treasury that those local authorities who are able to do so should be encouraged to go to the market for their requirements. This double Stamp Duty has been an obstacle in their way and I am very glad that my right hon. Friend proposes to do away with it. When that obstacle has been removed the result is likely to be that many local authorities which might otherwise have refrained from doing so will be encouraged to go to the market. That will be a good thing both for the local authorities and for the Treasury.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 153; Noes, 190.

Division No. 191.]
AYES
[11.5 p.m.


Allen, Arthur (Bosworth)
Beswick, F.
Bowles, F, G.


Awbery, S. S.
Bing, G. H. C
Brockway, A. F,


Bacon, Miss Alice
Blackburn, F.
Broughton, Dr. A. D. D.


Barnes, Rt. Hon. A J
Blenkinsop, A.
Brown, Rt. Hon. George (Bolper)


Bartley, P.
Boardman, H.
Burke, W. A.


Bence, C. R.
Bottomley, Rt. Hon. A. G
Callaghan, L. J.




Carmichael, J.
Jones, T. W. (Merioneth)
Shurmer, P. L. E.


Champion, A. J.
Keenan, W.
Silverman, Julius (Erdington)


Collick, P. H.
Kenyon, C.
Simmons, C. J. (Brierley Hill)


Corbel, Mrs. Freda
King, Dr. H. M.
Skeffington, A. M.


Cullen, Mrs. A.
MacColl, J. E.
Slater, J. (Durham, Sedgefield)


Darling, George (Hillsborough)
McInnes, J.
Sorensen, R. W.


Davies, Ernest (Enfield, E.)
MacMillan, M. K. (Western Isles)
Soskice, Rt. Hon. Sir Frank


Davies, Harold (Leek)
McNeill, Rt. Hon. H.
Sparks, J. A.


Davies, Stephen (Merthyr)
MacPherson, Malcolm (Stirling)
Stewart, Michael (Fulham, E.)


de Freitas, Geoffrey
Manuel, A. C.
Strauss, Rt. Hon. George (Vauxhall)


Deer, G.
Marquand, Rt. Hon. H. A.
Stross, Dr. Barnett


Delargy, H. J.
Mason, Roy
Summerskill, Rt. Hon. E.


Driberg, T. E. N.
Mayhew, C. P.
Swingler, S. T.


Ede, Rt. Hon. J. C.
Mikardo, Ian
Taylor, Bernard (Mansfield)


Edelman, M.
Mitchison, G. R.
Taylor, John (West Lothian)


Edwards, Rt. Hon. John (Brighouse)
Moody, A. S.
Taylor, Rt. Hon. Robert (Morpeth)


Edwards, W. J. (Stepney)
Morley, R.
Thomas, David (Aberdare)


Evans, Stanley (Wednesbury)
Mulley, F. W.
Thomas, George (Cardiff)


Fernyhough, E.
Murray, J. D.
Thomas, Iorwerth (Rhondda, W.)


Fienburgh, W.
Nally, W.
Thomas, Ivor Owen (Wrekin)


Finch, H. J.
Neal, Harold (Bolsover)
Thornton, E.


Fletcher, Eric (Islington, E.)
Noel-Baker, Rt. Hon. P. J.
Usborne, H. C.


Follick, M.
Orbach, M.
Wallace, H. W.


Fraser, Thomas (Hamilton)
Oswald, T.
Webb, Rt. Hon. M. (Bradford, C.)


Freeman, John (Watford)
Padley, W. E.
Wells, William (Walsall)



Paling, Rt. Hon. W. (Dearne Valley)



Gaitskell, Rt. Hon. H. T. N.
Paling, Will T. (Dewsbury)
West, D. G.


Gibson, C. W.
Palmer, A. M. F.
Wheeldon, W. E.


Greenwood, Anthony (Rossendale)
Pargiter, G. A.
White, Mrs. Eirene (E. Flint)


Grey, C. F.
Parker J.
White, Henry (Derbyshire, N.E.)


Griffiths, Rt. Hon. James (Llanelly)
Peart, T. F.
Whiteley, Rt. Hon. W.


Hale, Leslie
Plummer, Sir Leslie
Wigg, George


Hall, Rt. Hon. Glenvil (Colne Valley)
Popplewell, E.
Willey, F. T.


Hall, John T. (Gateshead, W.)
Price, Joseph T. (Westhoughton)
Williams, Rev. Llywelyn (Abertillery)


Hargreaves, A.
Price, Philips (Gloucestershire, W.)
Williams, Ronald (Wigan)


Hayman, F. H.
Proctor, W. T.
Wilson, Rt. Hon. Harold (Huyton)


Hobson, C. R.
Pryde, D. J.
Winterbottom, Ian (Nottingham, C.)


Holman, P.
Reid, Thomas (Swindon)
Winterbottom, Richard (Brightside)


Holmes, Horace (Hemsworth)
Rhodes, H.
Woodburn, Rt. Hon. A.


Hudson, James (Ealing, N.)
Robens, Rt, Hon. A.
Wyatt, W. L.


Hughes, Cledwyn (Anglesey)
Roberts, Albert (Normanton)
Yates, V. F.


Hughes, Emrys (S. Ayrshire)
Roberts, Goronwy (Caernarvon)
Younger, Rt. Hon. K.


Hughes, Hector (Aberdeen, N.)
Ross, William



Jay, Rt. Hon. D. P. T.
Royle, C.
TELLERS FOR THE AYES:


Jenkins, R. H. (Stechford)
Shackleton, E. A. A.
Mrs. Bowden and


Jones, David (Hartlepool)
Shawcross, Rt. Hon. Sir Hartley
Mr. Kenneth Robinson.


Jones, Jack (Rotherham)
Short, E. W.





NOES


Aitken, W. T.
Channon, H.
Harvey, Air Cdre. A. V. (Macclesfield)


Allan, R. A. (Paddington, S.)
Churchill, Rt. Hon. Sir Winston
Heald, Sir Lionel


Alport, C. J. M.
Clarke, Col. Ralph (East Grinstead)
Heath, Edward


Amery, Julian (Preston, N.)
Cole, Norman
Higgs, J. M. C.


Amory, Heathcoat (Tiverton)
Colegate, W. A.
Hill, Dr. Charles (Luton)


Ashton, H. (Chelmsford)
Conant, Maj. R. J. E.
Hill, Mrs. E. (Wythenshawe)


Assheton, Rt. Hon. R. (Blackburn, W.)
Cooper-Key, E. M.
Hirst, Geoffrey


Astor, Hon. J. J.
Craddock, Beresford (Spelthorne)
Holland-Martin, C. J


Baldock, Lt.-Comdr. J. M.
Crookshank, Capt. Rt. Hon. H. F. C.
Hollis, M. C.


Banks, Col. C.
Crosthwaite-Eyre, Col. O. E.
Holmes, Sir Stanley (Harwich)


Barlow, Sir John
Crowder, Sir John (Finchley)
Hope, Lord John


Baxter, A. B.
Crouch, R. F.
Hornsby-Smith, Miss M. P.


Beach, Maj. Hicks
Darling, Sir William (Edinburgh, S.)
Horobin, I. M.


Beamish, Maj. Tufton
Davidson, Viscountess
Howard, Gerald (Cambridgeshire)


Bell, Philip (Bolton, E.)
Deedes, W. F.
Howard, Hon. Greville (St. Ives)


Birch, Nigel
Digby, S. Wingfield
Hudson, Sir Austin (Lewisham, N.)


Bishop, F. P.
Doughty, C. J. A.
Hudson, W. R. A. (Hull, N.)


Black, C. W.
Duncan, Capt. J. A. L.
Hulbert, Wing Cdr. N. J.


Boothby, Sir R. J. G.
Fell, A.
Hutchinson, Sir Geoffrey (Ilford, N.)


Bossom, Sir A. C.
Finlay, Graeme
Hutchison, Lt.-Com. Clark (E'b'rgh W.)


Bowen, E. R.
Fisher, Nigel
Hylton-Foster, H. B. H.


Boyd-Carpenter, J. A.
Fleetwood-Hesketh, R. F.
Jenkins, Robert (Dulwich)


Boyle, Sir Edward
Fletcher-Cooke, C.
Johnson, Eric (Blackley)


Braine, B. R.
Fort, R.
Kaberry, D.


Braithwaite, Sir Albert (Harrow, W.)
Foster, John
Keeling, Sir Edward


Braithwaite, Lt.-Cdr. G. (Bristol, N.W.)
Galbraith, Rt. Hon. T. D. (Pollok)
Kerr, H. W.


Brooke, Henry (Hampstead)
Galbraith, T. G. D. (Hillhead)
Law, Rt. Hon. R. K.


Brooman-White, R. C.
Garner-Evans, E. H.
Legge-Bourke, Maj. E. A. H.


Buchan-Hepburn, Rt. Hen. P. G. T.
Graham, Sir Fergus
Legh, Hon. Peter (Petersfield)


Bullard, D. G.
Gridley, Sir Arnold
Lindsay, Martin


Bullus, Wing Commander E. E.
Grimston, Hon. John (St. Albans)
Linstead, Sir H. N.


Burden, F. F. A.
Grimston, Sir Robert (Westbury)
Lloyd, Maj. Sir Guy (Renfrew, E.)


Butler, Rt. Hon. R. A. (Saffron Walden)
Harden, J. R. E.
Lockwood, Lt.-Col. J. C.


Campbell, Sir David
Hare, Hon. J. H.
Longden, Gilbert


Carr, Robert
Harris, Frederic (Croydon, N.)
Low, A. R. W.


Cary, Sir Robert
Harrison, Col. J. H. (Eye)
Lucas, Sir Jocelyn (Portsmouth, S.)







McCallum, Major D.
Peyton, J. W. W.
Thomas, Rt. Hon. J. P. L. (Hereford)


Macdonald, Sir Peter
Pilkington, Capt. R. A
Thomas, Leslie (Canterbury)


Macleod, Rt. Hon. lain (Enfield, W.)
Pitman, I. J.
Thompson, Kenneth (Walton)


Macmillan, Rt. Hon. Harold (Bromley)
Powell, J. Enoch
Thompson, Lt.-Cdr. R. (Croydon, W.)


Macpherson, Niall (Dumfries)
Price, Henry (Lewisham, W.)
Tilney, John


Maitland, Comdr. J. F. W. (Horncastle)
Prior-Palmer, Brig. O. L.
Touche, Sir Gordon


Maitland, Patrick (Lanark)
Profumo, J. D.
Turner, H. F. L.


Manningham-Buller, Sir R. E.
Rayner, Brig, R.
Turton, R. H.


Marples, A. E.
Redmayne, M.
Vane, W. M. F.


Maude, Angus
Renton, D. L. M.
Vaughan-Morgan, J. K


Maudling, R.
Roberts, Peter (Heeley)
Vosper, D. F.


Maydon, Lt.-Comdr. S. L. O
Roper, Sir Harold
Wakefield, Edward (Derbyshire, W.)


Mellor, Sir John
Ropner, Col. Sir Leonard
Wakefield, Sir Wavell (St. Marylebone)


Molson, A. H. E.
Russell, R. S.
Ward, Hon. George (Worcester)


Nabarro, G. D. N.
Ryder, Capt. R. E. D.
Ward, Miss I. (Tynemouth)


Nicholls, Harmar
Salter, Rt. Hon. Sir Arthur



Nicolson, Nigel (Bournemouth, E)
Sandys, Rt. Hon. D.
Waterhouse, Capt. Rt. Hon. C.


Nield, Basil (Chester)
Scott, R. Donald
Webbe, Sir H. (London &amp; Westminster)


Nugent, G. R. H.
Scott-Miller, Cmdr. R
Wellwood, W.


Nutting, Anthony
Simon, J. E. S. (Middlesbrough, W.)
Williams, Sir Herbert (Croydon, E.)


Oakshott, H. D.
Smithers, Sir Waldron (Orpington)
Williams, Paul (Sunderland, S.)


O'Neill, Phelim (Co. Antrim, N.)
Soames, Capt. C.
Wills, G.


Ormsby-Gore, Hon. W. D.
Spearman, A. C. M
Wilson, Geoffrey (Truro)


Orr, Capt. L. P. S.
Stevens, G. P.
Wood, Hon. R.


Orr-Ewing, Charles Ian (Hendon, N.)
Steward, W. A. (Woolwich, W)
York, C.


Orr-Ewing, Sir Ian (Weston-super-Mare)
Stoddart-Scott, Col. M.



Osborne, C.
Strauss, Henry (Norwich, S.)
TELLERS FOR THE NOES:


Partridge, E.
Summers, G, S.
Sir Herbert Butcher and


Perkins, W. R. D.
Taylor, William (Bradford, N.)
Mr. Studholme.

Mr. Gaitskell: I beg leave to move, "That the Chairman do report Progress, and ask leave to sit again."
It is now almost 11.15 p.m., and, as the Chancellor is aware, many hon. Gentle- men find it particularly convenient to leave the House of Commons about this time. The Chancellor has always been very considerate of the convenience of hon. Gentlemen on previous occasions in this year's debates and also last year's and we all pay tribute to that. We have another four or live Clauses to consider before we come to the end of the Bill, and, of course, beyond that we have a large number of new Clauses on the Order Paper which, I understand, we shall be considering next week.
I imagine that the Chancellor would be glad if he could complete the Bill this evening. But I would draw his attention to the fact that there are among the five Clauses, two of substantial importance. There is Clause 30, dealing with Excess Profits Tax post-war refunds, which seems to us to contain some very odd proposals, and there is Clause 32, which provides for the permanent annual charge on the National Debt. That involves the whole question of the Government's Bank rate and monetary policy.
11.15 p.m.
These are very wide issues and I am sure that the Committee would agree that they should not be discussed at this hour. We do not very frequently have an opportunity to discuss the Government's Bank rate policy and as we shall be considering

the new Clauses next week I suggest it would be for the convenience of everyone if we could adjourn now. We should then have an opportunity of discussing much more clearly these important issues and I do not believe any time would be lost as a result.
There are a number of new Clauses. We do not know what will be selected but I urge strongly that we should adjourn now so that we may have a chance of discussing particularly the permanent charge on the National Debt under more convenient conditions.

Mr. R. A. Butler: The right hon. Gentleman is, I think, being a little unreasonable. Our idea always has been to get the Bill tonight. Indeed, the idea before that was to take the Bill and to start on the new Clauses, but it was represented to me that that was unreasonable and I agreed. I had no intention of starting the new Clauses tonight, but I had representation made to me that we should start with an important new Clause on Monday.
Now the right hon. Gentleman comes suddenly with this now proposal that we should leave open even Clause 29, which is a concession to local authorities and on which we have already had a Division. It is quite unreasonable to leave open that Clause. I know that my right hon. and hon. Friends desire to make more progress. Clause 30 is perfectly reasonable. I think we can give a reasonable explanation of it. A ques-


tion arises on Clause 31 which is not controversial.
The only remaining subject which can be discussed on the Bill is the question of the National Debt which, normally, does not lead to a long debate. If it is the intention of the Opposition to raise a debate we had better consider that when we come to it. I would not expect that to raise the whole question of the Bank rate policy, but if that is brought up and is in order no one can prevent the Opposition from putting forward what they wish.
I suggest we make some progress with these immediate matters, which I do not thing are controversial. But if there is to be a debate on important policy, now that we have made such good progress I do not want to keep the Committee too long. Perhaps we might leave it like that to see how we get on.

Mr. Gaitskell: I have no desire to be unreasonable and I can assure the right hon. Gentleman that I did not start out with any intention to postpone part of the discussion on the Bill itself until next week. But it so happens we have reached this stage and we have these important matters to discuss. If the right hon. Gentleman wishes to take Clauses 29, 30 and 31 and then to see how we have got on, with the possibility of leaving Clause 32, that is not unreasonable. In the circumstances, I beg to ask leave to withdraw the Motion.

Motion, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clause 30.—(EXCESS PROFITS TAX POST-WAR REFUNDS.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Gaitskell: I think we should have some explanation from the Government on this Clause. As I understand it, its intention is to alter the law governing the Excess Profits Tax refunds. It will be recalled that under the arrangements made in connection with those refunds any firm receiving money as a result of the refunds had first to satisfy the Commissioners of Inland Revenue that they were going to use that money for certain particular purposes. To put it briefly,

they had to satisfy them that they were going to spend the money on capital equipment and not on dividends, bonus issues or anything like that.
I think that we all agree that that was a very necessary and desirable condition. We have spent a good deal of time discussing the need to encourage investment. In fact, most of yesterday was spent on one method of doing that. The condition which applies under the present law to the refund of Excess Profits Tax is, of course, similarly a method of encouraging investment. Why, therefore, do the Government propose to change the law at this moment? I shall not say any more at this stage, but we shall need a very full explanation before we accept that a change of this kind is justified.

Mr. Maudling: I am glad to give the right hon. Gentleman the reason which the Government have for producing this Clause. It was provided fairly early during the war-time legislation that 20 per cent. of all Excess Profits Tax paid at the rate of 100 per cent. should be repaid after the war, subject to conditions to be determined by Parliament at that time. The conditions were duly determined in the Finance (No. 2) Act, 1945. They were, broadly speaking, that the refund should be applied to development or re-equipment of trade or business concerns.
It was important to have some adequate form of administration of these refunds and to provide some form of supervision of the very large sums of money involved, to ensure that the refunds were properly applied and to make sure that the undertakings were properly carried out. For that purpose there was provided an advisory panel and a referee who were to make sure that this matter was properly conducted. One of the important tasks was to define development and re-equipment. That was done by the panel and I think we all agree that it was done very satisfactorily.
The panel had also to watch the use of these refunds and to report to the Treasury any case in which either there was a breach of the undertaking or, the refund having taken place, the business was then wound up within a period of five years. The advisory panel have done their work extremely well. It is a fact that although the total amount of the refunds amount to £263 million the


amount which the panel had to report to the Treasury as being proper to be recalled by the Treasury out of these refunds, because the undertaking had been breached or because there had been a permanent discontinuance of the business within five years, is only £100,000. That is less than 05 per cent. of the total sum involved.
When the provisions were made it was recognised that they were not to continue permanently. The right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) said at the time:
We are dealing with a transitional state of affairs and with a change-over from war to peace. We all hope that all the arrangements we are discussing now will terminate within a reasonable time. … I shall be quite prepared so long as I hold my present office to look reasonably at these matters, but it is difficult at this stage to say just how long it will be necessary to get the turnover. There is no intention to linger on indefinitely."— [OFFICIAL REPORT, 28th November, 1945; Vol. 416, c. 1454.]
A certain amount of these refunds is still outstanding—I think some £10 million compared with the total of £263 million —in cases where the complexity of the Excess Profits Tax is such that it has not been possible to make some final adjustment. But in the great majority of cases where refund is still outstanding, the firms in question have, in fact, been re-equipping and developing all the time, and could properly apply the refunds they receive against money expended in the interim on re-development and re-equipment.
The advisory panel, which was appointed by the right hon. Gentleman's predecessor to supervise this matter, and which conducted the whole thing very efficiently, recommended, in their last annual report, that the time had come to terminate the present arrangements and to wind up the panel. Their recommendation was that the taxpayer should be released from undertakings already given and that a few payments of refund should be made up to that date. The Government have considered the recommendations and, in all the circumstances —since it was never intended to be an indefinite procedure—they think that the recommendations should be accepted. Their acceptance is framed in the Clause now before the Committee.

Mr. E. Fletcher: I should like to ask the hon. Gentleman one or two questions

arising out of his speech. If I understand him correctly, he said the total amount of the Excess Profits Tax post-war refund which had been agreed was £263 million. I think he gave the figure of 05 per cent. of the total in respect of which the advisory panel had to make inquiries. There is, nevertheless, still a sum of £10 million outstanding. I was not clear whether that figure remained to be agreed or whether it was still in dispute. I rather gathered from what the hon. Gentleman said that there is still £10 million worth of post-war credit in respect of which undertakings given have not been implemented.

Mr. Maudling: There is about £10 million still to be refunded almost all in cases where the final assessment of Excess Profits Tax has not been possible owing to dispute or for technical reasons.

Mr. Fletcher: I appreciate that. What I wish to obtain is the figure in respect of which undertakings have not yet been given. As the Economic Secretary realises, every payment of post-war refund is conditional on an undertaking being given. There are no doubt a number of cases in which for one reason or another it has not been possible for a company to give an undertaking.

Mr. Maudling: As the refund cannot be made without an undertaking, the amount in respect of each undertaking which has not been given is a sum of money which cannot be recovered.

Mr. Fletcher: That is precisely the point. We have £10 million in abeyance. If I understand what the hon. Gentleman said, as he is bringing the work of the advisory panel to an end, it will no longer be necessary for any undertaking to be given as regards this £10 million. Is this £10 million to be paid out?

Mr. James Callaghan: No.

Mr. Fletcher: I was trying to elicit information from the Government. After I have received the views of the Government we shall then have the views of my hon. Friend.
I always find that when we are getting near the end of the Finance Bill, it becomes more, rather than less, ambiguous as we go on. The Economic Secretary is, by stages, doing something to


clear up misconceptions which have arisen in the minds of some of my hon. Friends as to what the Clause means. We all want to get it clear. I think we have now reached the stage where we agree that there is about £10 million due to various companies in respect of postwar credits and in respect of which, if the administrative machinery laid down by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) still stood, there would be the normal provision of supervision by the advisory panel, and efforts would be taken to see that proper undertakings were given and carried out before this £10 million of public money was disbursed. It is now intended to abandon that machinery and disperse the panel.
The question asked by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell)—which I do not think was dealt with by the Economic Secretary— was why is it now decided to wind up this machinery? Why not wait another year?

11.30 p.m.

Mr. Maudling: I thought I had explained that it was because the advisory panel themselves recommended it.

Mr. Fletcher: That may be so, but this is the first we have heard about it. If I remember rightly, the Financial Secretary did not elaborate about this Clause in moving the Second Reading debate. I have had occasion before now to complain about the way in which the Financial Secretary, in moving the Second Reading of a not particularly simple Bill, was careful to select some Clauses for explanation and pass over others in complete silence. What is even more significant is the fact that one of the longest explanations he gave us—about the compelling necessity for having a Clause to revise the Excess Profits Levy—has now been admitted by him to have been all wrong, because he has had to move to delete it.

Mr. Boyd-Carpenter: Mr. Boyd-Carpenter indicated dissent——

Mr. Fletcher: It is no use the hon. Gentleman shaking his head. It is our duty to understand what this Bill means as we go along. The Economic Secretary now tells us, for the first time, that

this advisory panel has recommended its dispersal. Did the advisory panel say that a provision to that effect should be put into the Finance Bill this year? We are now asked to dispense with this £10 million of public money. On previous occasions, when we have tried to suggest very desirable remissions of taxation for the benefit of deserving sections of the community—whether of the Scilly Isles or elsewhere—we have been told that concessions could not be made because it would cost a certain amount of public money. Here, £10 million is involved. All we are concerned to see is that the elementary precautions devised by my right hon. Friend the Member for Bishop Auckland, a few years ago, should not be needlessly dispensed with without adequate protection.

Mr. Gaitskell: I was rather puzzled by the reply of the Economic Secretary. He may say, "There is only £10 million left; does it really matter?" but £10 million is quite a substantial sum of money. The argument that this is such a small amount of money does not appeal to me a great deal.

Mr. Maudling: The question is not whether the £10 million shall be repaid, but whether it shall be repaid only if an undertaking is given.

Mr. Gaitskell: I do not think I said anything to the contrary. The fact is that, as a result of what the Government propose to do, there will be nothing to prevent the companies concerned from disbursing the whole of that £10 million in dividends or in some other way which is not going to help productive industry. It is proposed that this safeguarding condition shall not be laid down. The only explanation is that the advisory panel have sent a report to the Government saying that they think it is time the whole thing was wound up.
I ask the Economic Secretary whether that report has been published. As he knows very well—I am not sure whether this is out of order; I rather fancy it is— it is certainly contrary to the conventions of the House for a Minister to refer to a document of that kind when it has not been published and made available to hon. Members. There is a very good reason for that. How can we judge the arguments of the advisory panel if we cannot read their report?
Would the Economic Secretary tell us straight away whether this report is available? If it is it is a different matter, but we cannot accept the argument just because an advisory panel has produced a document—which none of us has seen —saying that they think it is about time that this machinery was discontinued. How do we know whether the advisory panel has considered the broader arguments with which, of course, the Economic Secretary, and we, are familiar. We have had a most inadequate account, and I hope we shall have further explanation. If we do not, I shall strongly advise my hon. Friends to divide against it.

Mr. E. Fletcher: May I ask your ruling, Mr. Hopkin Morris, on whether the document to which the Economic Secretary has referred, namely, the report of the advisory panel, ought not, under the rules of the House, to be laid on the Table? It is a document which has been referred to in an important speech by a Minister. I do not think that anyone on this side of the Committee has seen it. May I ask whether we are not entitled to see this document before we proceed?

The Deputy-Chairman (Mr. Hopkin Morris): I know nothing of any document. I did not hear the beginning of the hon. Gentleman's speech, but I understood that he paraphrased what the document said.

Mr. Jay: On a point of order. May we at least have an answer on the question of fact, from the Economic Secre-

tary, on whether the document has been published?

The Deputy-Chairman: That is not a point of order.

Mr. Jay: My point of order was whether sufficient time might not be allowed before the debate ends for the Economic Secretary, who is willing to do so, to answer.

Mr. Maudling: My right hon. Friend receives advice from many quarters. When the advisory panel has recommended that something should be done it has not, so far as I know, been published, nor is it incumbent upon my right hon. Friend to publish in detail the advice which he receives from any source.

Mr. R. A. Butler: There have been reports in the past from this body, and so far they have not been published. I will undertake on a future occasion to investigate whether they can, or should, be published. I believe there have been six reports, and none has been published. I will look into the matter and report at a later stage.

Mr. Gaitskell: I do not want to carry the matter further in discusion now, but I feel that the explanation we have had is inadequate. I hope the Chancellor of the Exchequer will think over the matter before the Report stage.

Question put, "That the Clause stand part of the Bill."

The Committee divided: Ayes, 177; Noes, 139.

Division No. 192.]
AYES
[11.40 p.m.


Aitken, W. T.
Brooman-White, R. C
Fletcher-Cooke, C.


Allan, R. A. (Paddington, S.)
Buchan-Hepburn, Rt. Hon. P. G. T.
Fort, R.


Alport, C. J. M.
Bullard, D. G.
Foster, John


Amery, Julian (Preston, N.)
Burden, F. F. A.
Galbraith, T. G. D. (Hillhead)


Amory, Heathcoat (Tiverton)
Butcher, Sir Herbert
Garner-Evans, E. H.


Ashton, H. (Chelmsford)
Butler, Rt. Hon. R. A. (Saffron Walden)
Graham, Sir Fergus


Assheton, Rt. Hon. R. (Blackburn, W.)
Campbell, Sir David
Grimston, Hon. John (St. Albans)


Astor, Hon. J. J.
Carr, Robert
Grimston, Sir Robert (Westbury)


Baldock, Lt.-Cmdr. J. M.
Cary, Sir Robert
Harden, J. R. E.


Banks, Col. C.
Channon, H.
Hare, Hon. J. H.


Barlow, Sir John
Churchill, Rt. Hon. Sir Winston
Harris, Frederic (Croydon, N.)


Baxter, A. B.
Clarke, Col. Ralph (East Grinstead)
Harvey, Air Cdre. A. V. (Macclesfield)


Beach, Maj. Hicks
Cole, Norman
Heald, Sir Lionel


Beamish, Maj. Tufton
Colegate, W. A.
Heath, Edward


Bell, Philip (Bolton, E.)
Cooper-Key, E. M.
Higgs, J. M. C.


Bennett, William (Woodside)
Craddock, Beresford (Spelthorne)
Hill, Dr. Charles (Luton)


Birch, Nigel
Crookshank, Capt. Rt. Hon. H. F. C.
Hill, Mrs. E. (Wythenshawe)


Bishop, F. P.
Crosthwaite-Eyre, Col. O. E.
Hirst, Geoffrey


Black, C. W.
Crouch, R. F.
Holland-Martin, C. J


Boothby, Sir R. J. G.
Davidson, Viscountess
Hollis, M. C.


Bossom, Sir A. C.
Deedes, W. F.
Holmes, Sir Stanley (Harwich)


Bowen, E. R.
Digby, S. Wingfield
Hope, Lord John


Boyd-Carpenter, J. A.
Doughty, C J. A.
Hornsby-Smith, Miss M. P.


Boyle, Sir Edward
Fell, A.
Horobin, I. M.


Braithwaite, Sir Albert (Harrow, W.)
Finlay, Graeme
Howard, Gerald (Cambridgeshire)


Braithwaite, Lt.-Cdr. G. (Bristol, N.W.)
Fisher, Nigel
Howard, Hon. Greville (St. Ives)


Brooke, Henry (Hampstead)
Fleetwood-Hesketh, R. F.
Hudson, Sir Austin (Lewisham, N.)




Hudson, W. R. A. (Hull, N.)
Nicholls, Harmar
Simon, J. E. S. (Middlesbrough, W.)


Hulbert, Wing. Cdr. N. J.
Nicolson, Nigel (Bournemouth, E.)
Soames, Capt. C.


Hutchinson, Sir Geoffrey (Ilford, N.)
Nield, Basil (Chester)
Stevens, G. P.


Hylton-Foster, H. B. H.
Nugent, G. R. H.
Steward, W. A. (Woolwich, W.)


Jenkins, Robert (Dulwich)
Nutting, Anthony
Stoddart-Scott, Col. M.


Johnson, Eric (Blackley)
Oakshott, H. D.
Strauss, Henry (Norwich, S.)


Kaberry, D.
O'Niell, Phelim (Co. Antrim, N.)
Studholme, H. G.


Keeling, Sir Edward
Ormsby-Gore, Hon. W. D.
Summers, G. S.


Kerr, H. W.
Orr, Capt. L. P. S.
Taylor, William (Bradford, N.)


Law, Rt. Hon. R. K.
Orr-Ewing, Charles Ian (Hendon, N.)
Thomas, Leslie (Canterbury)


Legge-Bourke, Maj. E. A. H.
Orr-Ewing, Sir Ian (Weston-super-Mare)
Thompson, Kenneth (Walton)


Legh, Hon. Peter (Petersfield)
Osborne, C.
Thompson, Lt.-Cdr. R. (Croydon, W.)


Lindsay, Martin
Partridge, E.
Touche, Sir Gordon


Linstead, Sir H. N.
Perkins, W. R. D.
Tunner, H. F. L.


Lloyd, Maj. Sir Guy (Renfrew, E.)
Peyton, J. W. W.
Turton, R. H.


Lockwood, Lt.-Col. J. C.
Pilkington, Capt. R. A.
Vans, W. M. F.


Longden, Gilbert
Pitman, I. J.
Vaughan-Morgan, J. K.


Low, A. R. W.
Powell, J. Enoch
Wakefield, Edward (Derbyshire, W.)


Lucas, Sir Jocelyn (Portsmouth, S.)
Price, Henry (Lewisham, W.)
Wakefield, Sir Wavell (St. Marylebone)


McCallum, Major D.
Prior-Palmer, Brig, O. L.
Ward, Hon. George (Worcester)


Macdonald, Sir Peter
Profumo, J. D.
Ward, Miss I. (Tynemouth)


Macleod, Rt. Hon. lain (Enfield, W.)
Rayner, Brig. R.
Waterhouse, Capt. Rt. Hon. C.


Macmillan, Rt. Hon. Harold (Bromley)
Redmayne, M.
Webbe, Sir H. (London &amp; Westminster)


Macpherson, Niall (Dumfries)
Renton, D. L. M.
Wellwood, W.


Maitland, Comdr. J. F. W. (Horncastle)
Roberts, Peter (Heeley)
Williams, Sir Herbert (Croydon, E.)


Manningham-Buller, Sir R. E.
Roper, Sir Harold
Williams, Paul (Sunderland, S.)


Marples, A. E.
Ropner, Col. Sir Leonard
Wills, G.


Maude, Angus
Russell, R. S.
Wilson, Geoffrey (Truro)


Maudling, R.
Ryder, Capt. R. E. D.
Wood, Hon. R.


Maydon, Lt. Comdr. S. L. C.
Salter, Rt. Hon. Sir Arthur
York, C.


Mellor, Sir John
Sandys, Rt. Hon. D.



Molson, A. H. E.
Scott, R. Donald
TELLERS FOR THE AYES:


Nabarro, G. D. N.
Scott-Miller, Cmdr. R.
Major Conant and Mr. Vosper.




NOES


Allen, Arthur (Bosworth)
Hall, John T. (Gateshead, W.)
Reid, Thomas (Swindon)


Awbery, S. S.
Hargreaves, A.
Rhodes, H.


Bacon, Miss Alice
Hayman, F. H.
Robens, Rt. Hon. A.


Bartley, P.
Hobson, C. R.
Roberts, Albert (Normanton)


Bence, C. R.
Holman, P.
Roberts, Goronwy (Caernarvon)


Beswick, F.
Hudson, James (Ealing, N.)
Robinson, Kenneth (St. Pancras, N.)


Bing, G. H. C.
Hughes, Cledwyn (Anglesey)
Ross, William


Blackburn, F.
Hughes, Emrys (S. Ayrshire)
Shackleton, E. A. A.


Blenkinsop, A.
Hughes, Hector (Aberdeen, N.)
Shawcross, Rt. Hon. Sir Hartley


Boardman, H.
Jay, Rt. Hon. D. P. T.
Shurmer, P. L. E.


Bottomley, Rt. Hon. A. G
Jenkins, R. H. (Stechford)
Silverman, Julius (Erdington)


Bowden, H. W.
Johnson, James (Rugby)
Simmons, C. J. (Brierley Hill)


Bowles, F. G.
Jones, David (Hartlepool)
Skeffington, A. M.


Brockway, A. F.
Jones, Jack (Rotherham)
Slater, J. (Durham, Sedgefield)


Brown, Rt. Hon. George (Belper)
Keenan, W.
Sorensen, R. W.


Burke, W. A.
Kenyon, C.
Soskice, Rt. Hon. Sir Frank


Callaghan, L. J.
King, Dr. H. M
Sparks, J. A.


Champion, A. J.
MacColl, J. E.
Stewart, Michael (Fulham, E.)


Collick, P. H.
Mclnnes, J.
Strauss, Rt. Hon. George (Vauxhall)


Corbet, Mrs. Freda
MacMillan, M. K. (Western Isles)
Summerskill, Rt. Hon. E.


Cullen, Mrs. A.
MacPherson, Malcolm (Stirling)
Taylor, Bernard (Mansfield)


Dalton, Rt. Hon. H.
Manuel, A. C.
Taylor, Rt. Hon. Robert (Morpeth)


Davies, Ernest (Enfield, E.)
Marquand, Rt. Hon. H. A.
Thomas, David (Aberdare)


Davies, Harold (Leek)
Mason, Roy
Thomas, George (Cardiff)


Davies, Stephen (Merthyr)
Mayhew, C. P.
Thomas, Iorwerth (Rhondda, W.)


de Freitas, Geoffrey
Mikardo, Ian
Thomas, Ivor Owen (Wrekin)


Deer, G.
Mitchison, G. R.
Thornton, E.


Delargy, H. J.
Moody, A. S.
Usborne, H. C.


Driberg, T. E. N.
Morley, R.
Wallace, H. W.


Ede, Rt. Hon. J. C.
Mulley, F. W.
Webb, Rt. Hon. M. (Bradford, C.)


Edelman, M.
Murray, J. D.
Wells, William (Walsall)


Edwards, Rt. Hon. John (Brighouse)
Nally, W.
West, D. G.


Evans, Stanley (Wednesbury)
Neal, Harold (Bolsover)
Wheeldon, W. E.


Fernyhough, E.
Noel-Baker, Rt. Hon. P. J
White, Mrs. Eirene (E. Flint)


Finch, H. J.
Orbach, M.
White, Henry (Derbyshire, N.E.)


Fletcher, Eric (Islington, E.)
Oswald, T.
Whiteley, Rt. Hon. W.


Follick, M.
Paling, Rt. Hon. W. (Dearne Valley)
Wigg, George


Fraser, Thomas (Hamilton)
Paling, Will T. (Dewsbury)
Willey, F, T.


Freeman, John (Watford)
Palmer, A. M. F.
Williams, Rev. Llywelyn (Abertillery)


Gaitskell, Rt. Hon. H. T. N.
Pargiter, G. A.
Williams, Ronald (Wigan)


Gibson, C. W.
Parker, J.
Wilson, Rt. Hon. Harold (Huyton)


Gordon-Walker, Rt. Hon. P. C.
Peart, T. F.
Winterbottom, Richard (Brightside)


Greenwood, Anthony (Rossendale)
Plummer, Sir Leslie
Wyatt, W. L.


Grey, C. F.
Popplewell, E.
Yates, V. F.


Griffiths, Rt. Hon. James (Llanelly)
Price, Joseph T. (Westhoughton)
Younger, Rt. Hon. K.


Hale, Leslie
Price, Philips (Gloucestershire, W.)



Hall, Rt. Hon. Glenvil (Colne Valley)
Proctor, W. T.
TELLERS FOR THE NOES:




Mr. Royle and Mr. Horace Holmes.


Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 31.—(PROCEEDINGS FOR CUSTOMS AND EXCISE PENALTIES, ETC.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

11.45 p.m.

Sir F. Soskice: Would the Solicitor-General tell us, in a few words, what is the purpose of this Clause?

The Solicitor-General: The reasons for this Clause arise out of the recent decision in a case called Brown v. The Allweather Mechanical Grouting Company, Ltd., in the Divisional Court of Queen's Bench Division. It was held that excess penalties did not involve any conviction with the result that anyone who was charged with aiding and abetting could not be convicted. The right hon. and learned Gentleman is, I am sure, aware that throughout the old Customs Act there are often references to proceedings for recovery of excess penalties or treble penalties. That decision casts doubt on whether these proceedings will result in conviction, and the observations made in the course of that case indicate that the word "offence" did not necessarily involve conviction.
It was to make clear what the position was that this Clause was proposed, and it brings the position into line with what most people thought it was before that decision, so that there can be recovery in the magistrate's court. These proceedings will be of a criminal character so as to enable proceedings against limited liability companies, who may be the main perpetrators, to be taken and to enable proceedings to be taken also against those individuals who participate in the commission of the offences.

Clause ordered to stand part of the Bill.

Mr. Gaitskell: I beg to move, "That the Chairman do report Progress, and ask leave to sit again."
A short while ago we had a discussion about the arrangements for this evening and next week, and I understood that the outcome of that was that the Chancellor was prepared to agree to defer to next week Clause 32, to which we attach such special importance. I hope that the right hon. Gentleman will agree. It is not in any way that I wish to prolong the proceedings next week, but we believe we ought to have a proper discussion about the interest on the National Debt.

Mr. R. A. Butler: I presume that the right hon. Gentleman's observations indicate that he wishes to have a prolonged debate on this subject. I think it would be unreasonable to start on this subject at this late hour of the night, but I should like to make it quite clear that it is the Government's intention to get the Bill in the days allotted next week. We also have the new Clauses, which will take a considerable time. Therefore, I trust that this one remaining point will not occupy much of our discussions next week.
I must point out to the right hon. Gentleman that it is a subject which could be raised, and would be in order, on the Second Reading of the Bill, quite apart from any other occasion, and could also be further debated on Report. I must also say that if we do not make progress it will simply mean asking the Committee to sit late, and as we have tried to avoid that and do our work properly I hope that all will play in the forthcoming match next week.
On the subject of today, we have had just over eight hours of solid work without any interruption, and I think that that is about all for one day. We have made progress from Clause 14 to Clause 31 of the Bill and covered all the subjects. Accordingly, I am quite ready to accept the Motion.

Committee report Progress; to sit again Tomorrow.

ARMY ACT AND AIR FORCE ACT

Mr. J. R. H. Hutchison discharged from the Select Committee on the Army Act and Air Force Act and Mr. Tilney added.—[Major Conant.]

RESERVE FLYING SCHOOLS (CLOSING)

Motion made, and Question proposed, "That this House do now adjourn."— [Major Conant.]

11.51 p.m.

Mr. John Grimston (St. Albans): The topic I am raising this evening, namely, the closing of certain of the Reserve flying schools, is a very wide one and I shall try to limit what I have to say to give my hon. Friend the Under-Secretary of State for Air an opportunity of answering the points which I shall seek to make.
I should say, at the outset, that my object is to give him this opportunity of explaining the purpose behind this move which, in my experience, is imperfectly understood by those most affected. To narrow the field for discussion between us, may I also say that I agree with my hon. Friend and with the Government that economies were necessary in the operation of these schools, that there were many petty extravagances in their day to day running which did not exist under the arrangements which operated before the war, and that there were many men on the strength of the various flights who could serve no useful purpose. There was a good deal of unproductive training done, there has been no clear aim before these reserves since the war, and they have provided a large number of pilots whose ages were getting increasingly high and who would consequently be of little value in the event of war.
I should also make it clear that I do not regard these reserves as a source of operational jet fighter pilots in the event of war, but I differ from the Minister on two main questions: First, the method of timing and putting over his announcement, and, secondly, the effect of the move on the future supply of pilots for Coastal Command, for Transport Command and for civil aircraft.
To deal with the first point first, it seems to me that the impression which this move has given in the way it was

put over has been that it was a snap decision taken without sufficient forethought. In the first place it was announced on 20th December, a few days before Christmas, at a time when those men who were affected could do nothing whatever to help themselves. Although this may seem a small point, it is one on which the people affected feel very much.
Secondly, three months after the announcement was made an advertisement appeared in "Flight," a magazine read by flying people, asking them to join the very Service from which they had been sacked. The advertisement was strongly worded and asked people who were in the R.A.F. in the war to go back into the R.Aux.A.F. and the Volunteer Reserve on a part-time basis. It went on, "What so many do not realise is that the R.A.F. really needs part-timers and cannot do without them. In going back on a part-time basis you will be doing a service to yourself and the country." That fact that that advertisement was inserted three months after the decision to sack these men did not encourage them to feel that the decision was taken after a great deal of thought. I hope that the Minister will be able to correct at least that point.
Six months after they were told they were going to be dismissed and their schools closed down many of the members of these reserves still do not know whether they are, in fact, to be offered flying jobs or not. On the other hand, several obvious misfits have been retained. One case concerns a man of 46 who can be of no possible use in the event of war, and another one concerns a man grounded through lack of nerve who has been offered a further five years' flying engagement. These are small, isolated points, but they serve to indicate how the people on the job regard the way the decision is working out in practice, and they need reassurance.
Lastly, the effect of the timing has been not to make for a smaller, more efficient and keener Reserve, but one much disillusioned. A subsidiary effect of this method of putting over this decision has been the effect on the recruitment to this and similar services. There is a feeling that if this is the way one is treated in the Air Force it is better to go to the other Services.
The closing down of flying on smaller aerodromes means that the overheads, such as fire and flying control, police, and so on, will become a burden which the remaining civilian flying element on these aerodromes will be unable to bear, and, consequently, will result in their closing down with the loss of opportunity to young men to become keen on the air and enter the Service in the future.
The main result of the decision is that it will mean that we shall not get the kind of reserve of pilots for transport and coastal aircraft that I am quite certain we need. There is a feeling shared by many that the Air Ministry is obsessed with the flying of jet aircraft by young pilots, and possibly with the future development of guided missiles. As has been shown by the Americans in Korea, I believe that equally important in the event of war is the need to get people to and from the theatre of war as quickly as possible. That means an increasing use of transport aircraft.
Pilots for these aircraft are people who can very well be trained part-time for ordinary civilian walks of life. A man does not need to be very young to fly them. What is needed is that a man be exceptionally keen, accurate, and should have the qualities of mind to enable him to know a great deal about navigation, trigonometry, and radio. All these things can be learned in the class rooms, cheaply. A very useful adjunct to our reserves would be formed if they were manned on a part-time basis by the kind of young men who like to do part-time National Service, and prefer to do it in a Service connected with the air.
I believe the supply of pilots is not a thing of which the R.A.F. can wash its hands. Only recently B.O.A.C. had to go to Australia to recruit its pilots. Surely that is wrong. We can produce the pilots if young men have the opportunity, and I believe there is no better training than that obtained before the war through a reserve branch of the R.A.F.
To sum up. I believe that economies have to be made, but the decision appears to have been a snap decision, taken without sufficient thought. I believe it is not understood by those who spent their whole working lives in the job. I believe that it represents a lessening of the opportunity for part-time service for the right type of young man, which is a

pity. I believe the effect on coastal transport and civil flying, and so on, future recruits, will be serious. Finally, I hope that this debate will give the Minister the opportunity of explaining to many people who are seriously worried at the moment.

12.1 a.m.

Dr. Horace King: The young men we are talking about served in the war with great distinction. Young and middle-aged R.A.F. reservists have come to me and expressed their sense of disappointment and frustration at what has happened. They served their country and they wish to continue to do so. They are not too old at 35, 38 or 39, and if they are not physically capable or mentally alert enough to serve with the jet planes they can serve in the pistonengine aeroplanes.
I am grateful to the hon. Member for St. Albans (Mr. J. Grimston) for raising this subject and I hope that the Minister may say something which will allay the feeling of injustice which exists.

12.2 a.m.

The Under-Secretary of State for Air (Mr. George Ward): In the autumn of last year the Government carried out a thorough review of the defence programme in all its aspects. This was announced to the House of Commons by the Prime Minister on 4th December. Included in that review was a careful examination of the size and shape of our air crew reserves to see whether we were getting the best value for the considerable amount of money we were spending on their training.
In calculating the most economical and efficient size of a reserve air crew force account must be taken of the number of aircraft we are likely to have in war and the known wastage rates. In calculating the shape of the reserve there must be a thorough examination of the age and qualification of each individual reservist and his experience. All this was done before any decision was arrived at and the decision made was not a snap decision.
More for the benefit of the hon. Member for Southampton, Test (Dr. King) than for my hon. Friend the Member for St. Albans (Mr. J. Grimston) I would quote what I said on this subject in the


speech I made in the Air Estimates debate on 12th March:
We have also made a thorough re-examination of our air crew policy for the Volunteer Reserve. We have taken into account the fact that the age of these reservists is rising; that many of them have necessarily been out of touch with Service flying for some years; and that any refresher training on modern operational aircraft must inevitably be given at Royal Air Force stations, as, indeed, happened when we called up pilots for three months' refresher training on operational types in 1950. In consequence, we can only justify in present circumstances, giving training on Chipmunks and Ansons to a much smaller proportion of the aircrew now on the Reserve. These considerations have led us to the inescapable conclusion that we can and must make a saving in the provision of reserve flying facilities."— [OFFICIAL REPORT, 12th March, 1953: Vol. 512, c. 1512–3.]
By the middle of December it had already become clear that substantial economies had to be made, and that has been acknowledged by my hon. Friend tonight. Although our detailed examination was not entirely complete we were left without any doubt whatever even at that stage that whatever the outcome was we could immediately close seven schools.
However, before taking any action to close those schools I felt it was my duty to tell the House of Commons about it. But it was the last week of the Session. If I had waited until January, when the House reassembled, a whole month would have passed during which we should have been spending a considerable amount of money which we knew that we ought not to spend. We therefore felt it our duty to tell the House before the Christmas Recess and to take action to close down seven of the schools without delay.
I very much regret that it was necessary to do this just before Christmas, but I hope that my hon. Friend will appreciate the exceptional difficulty I was in in the matter. The advertisement in the magazine "Flight" was directed at the whole field of recruitment for non-Regular Forces and not necessarily at Volunteer Reserve aircrew alone. All the same, in the form in which it was produced it could be reasonably interpreted as designed to attract aircrew primarily. Therefore, we withdrew it immediately after my speech on the Estimates in March.
My hon. Friend said that many reservists still did not know their fate. I am advised that all pilots have already

been told and that all signallers and navigators will be told by the end of this week. With the letter which we wrote to each reservist went a personal message from my noble Friend explaining the reasons for our action and expressing the Air Council's appreciation of the service which that reservist had given to the Royal Air Force and regret that we had to end his training. We earnestly hope that many of them will continue to serve the R.A.F. in a ground branch.
I cannot answer my hon. Friend tonight on the question of the individual cases, but I should be glad to look into them if he will let me have further details. I am very keen that this matter should work smoothly and that there should be no misunderstanding of that sort. What about the remainder? The picture is not really as bad as it has been painted—not by my hon. Friend but by others elsewhere. In round numbers, a total of 3,200 aircrew will remain out of the original 7,600. Taking pilots only, 2,200 will remain out of 5,000. That will include about 250 qualified flying instructors whom we may need at the flying schools on the outbreak of war.
All these 3,200 will, of course, continue their training, and a large number of them will voluntarily go to R.A.F. stations to do their continuous annual training on operational types of aircraft. As regards the future, the aircrew reserves are now beginning to benefit from the flow of young National Service men and short service Regular aircrew who have completed their full time service in the R.A.F. and are up to date on modern types of jet aircraft. Although I am inclined to sympathise with what has been said tonight about being too absorbed with jets, we cannot lose sight of the fact that this is a jet age. Before very long, there will be far more jet planes in the Air Force than piston-engined types. But there will also still be room in the Volunteer Reserve for additional entrants under the age of 26.
The figures I have given do not represent the whole of our aircrew reserve. I wish to make that quite clear. There is quite a considerable built-in reserve in the Regular force, because in the ordinary course of their duties and of their careers many fully trained operational pilots, with recent squadron flying experience, are necessarily doing a tour of duty on


the ground or in some non-operational type of flying. These would be available immediately to take their places in the front line on the outbreak of war and would be replaced by people beyond the age for operational flying.
My hon. Friend mentioned particularly supplies of crews for Transport and Coastal Command. I have figures here of reserves with experience of all roles in the air force. Out of the total of 3,200 I mentioned, we are keeping nearly 1,000 who have had experience in the transport role. Moreover, those with the necessary experience of transport flying will be kept on until they are 40 years of age. Then there will be the flow in the ordinary course of events of pilots coming out of the R.A.F. at the end of their short service engagements and taking their places in the Reserve, as the older men reach the age limit and have to retire. That, of course, is the object of any Reserve—to keep going all the time the flow of people who will be most useful in time of war.
As regards Coastal Command, we are keeping nearly 500 who are experienced in that branch, and the same applies to the flow of new blood into reserve training in the maritime or coastal role as I pointed out in the case of the transport role. Civil aviation was another point which was worrying my hon. Friend. The R.A.F. will, of course, always remain the main training ground—the nursery if you like—for civil aviation pilots. Many people who finish their short service engagements will take employment in civil aviation; and that is as it should be.
The more people we can get into the Air Force for four- and eight-year engagements the better it will be for civil aviation as those people finish their engagements and go out into civil aviation again. The number of National Service aircrews who have taken on employment

in civil aviation has been very few, and that has been a disappointment to us all, but it is quite understandable, because in the short time they are with us they do not really get the experience for which the civilian operators are looking, and it costs them a good deal of money to get it on their own.
I am grateful to my hon. Friend the Member for St. Albans for raising this matter tonight, because it gives me another opportunity of saying something to dispel the doubts felt by people who really have not had the opportunity to study this matter because it is so complicated. I know that my hon. Friend must feel deeply about the closing down of the No. 1 Reserve Flying School at Panshanger. This is the original de Havilland School of Flying and was the oldest of the schools which trained reservists of the Royal Air Force for a great many years—a task which was begun at Stag Lane as long as 30 years ago.
Many of the other civil flying schools have an equally fine record of training our airmen under civil contract over the years. They have staffs which include names famous in the aviation world, and some who have been in the schools since their earliest days have helped to train many thousands of Royal Air Force crews. The knowledge of the fine work done by these famous schools made our decision all the more difficult. I should like to say once again how very much we appreciate all the work they have done for us in the past and how deeply my noble Friend and all members of the Air Council regret that we have had to close them down.

Adjourned accordingly at Seventeen Minutes past Twelve o'clock, a.m.